Revenue and expense deferrals in Subscription billing

Article
04/29/2024

This article explains how to set up and use revenue and expense deferrals in Subscription billing. Deferral schedules are always based on and depend on an underlying originating document or billing schedule. Because they are created based on default values, they can't be entered or created separately.

The process of setting up and using revenue and expense deferrals occurs on multiple pages:

On the Revenue and expense deferral parameters page, you can define the company preferences.
On the Deferral defaults page, you can set up the default accounts and templates that are used for the deferral schedules.
On the Deferral templates and Event based deferral templates pages, you can define the templates that are used for the deferral schedules.
On the All deferral schedules page, you can view and edit any deferral schedule.

Revenue and expense deferrals can be used together with recurring contract billing.

Revenue and expense deferral parameters

The Revenue and expense deferral parameters page contains the following fields.

Field	Description
Schedule tab
Equal per period	Specify whether the number of days in a period is used when the amount per period is calculated for a deferral schedule: Yes – The amount for each period is the same, regardless of the number of days in the period. Partial periods (such as periods at the beginning or end of a deferral schedule) will be prorated. No – The amount is calculated based on the number of days in each period. You can override this setting at the transaction level.
Sales discount deferral option	Specify whether separate deferral schedules are created for the discount and the sales order amounts: Separate schedule for discount – The discount amount is kept separate from the revenue amount. In this case, two deferral schedules are created when a sales order is created and then posted. The discount and revenue amounts will be posted to different deferral accounts. Merge discount with revenue – The discount amount is combined with the revenue amount. One deferral schedule is created, and both the discount amount and the revenue amount are posted to the same deferral account. In this case, one deferral schedule is created when a sales order is created and then posted. Both the discount amount and the revenue amount are posted to the same deferral account. Note: To apply discounts to items that use the unbilled revenue feature, select the Separate schedule for discount option. Discounts can then be applied to all items, regardless of whether the unbilled revenue feature is used. If the Merge discount with revenue option is selected, discounts can't be applied to items that use the unbilled revenue feature.
Purchasing discount deferral option	Select whether separate deferral schedules are created for the discount and purchase order amounts: Separate schedule for discount – The discount amount is kept separate from the expense amount. In this case, two deferral schedules are created when a purchase order is created and then posted. The discount and expense amounts are posted to different deferral accounts. Merge discount with revenue – The discount amount is combined with the expense amount. One deferral schedule is created, and both the discount amount and the expense amount are posted to the same deferral account. In this case, one deferral schedule is created when a purchase order is created and then posted. Both the discount amount and the expense amount are posted to the same deferral account.
Consolidate prior periods	Specify whether deferral schedule lines for previous periods are consolidated: Yes – If the deferral start date is in a period before the transaction date, all amounts up through the period of the transaction date are combined onto a single deferral schedule line. No – The amounts from all periods are kept on separate deferral schedule lines. If the deferral start date is in the same period as or a later period than the transaction date, this option has no effect. This setting can be updated at the transaction level.
Default deferral start date	Select the rule that is used to determine the start date of the deferral schedule: Transaction date – Use the transaction date as the start date. Beginning of current month – Use the first of the current month as the start date. If the transaction date is the first of any month, the first of the current month is the start date. Beginning of next month – Use the first of the next month as the start date. If the transaction date is on the first, the transaction date is used. Otherwise, the first of the next month is used. Rule of 15 – If the transaction date is between the first and the fifteenth, use the first of the current month as the start date. If the transaction date is the sixteenth or later, use the first of the next month as the start date. You can update this setting at the transaction level.
Short-term deferral method	Select the short-term deferral method: None, Rolling periods, or Fixed year.
Deferral posting method	Select the method that is used to create deferral transactions: Balance sheet – Use the balance sheet posting method to create deferral transactions. Profit and loss – Use the profit and loss posting method to create deferral transactions. When transactions are posted, you can review the invoice voucher to see the extra entries that balance the initial recognition and recognition offset amounts.
Reverse profit and loss on credit	Note: This field is available only when the Deferral posting method field is set to Profit and loss. Specify whether the profit and loss amounts are reversed when a reversal, termination, or refund is applied to a billing schedule or sales order: Yes – Reverse the profit and loss amounts, and apply a credit adjustment amount to the deferral schedule. If the reversal occurs halfway through a billing period, the amounts are prorated. No – No reversal transaction is created for the profit and loss when a reversal, termination, or refund is applied to a billing schedule or sales order.
Recognition tab
Automatically post general journals	Specify whether journal entries that are created by revenue and expense deferrals are automatically posted: Yes – Automatically post journal entries that are created by revenue and expense deferrals. Tip: By selecting Yes, you can help prevent accounting inconsistencies that are caused by manual changes to vouchers. No – Journal entries that are created by revenue and expense deferrals aren't automatically posted. You must manually post any journals.
Summarize recognition journal	Specify whether recognition vouchers are consolidated by default: Yes – Create a single voucher for all recognition lines that have the same date. All lines in a voucher that have the same account are consolidated onto a single line. No – Create a voucher for each recognition line. You can update this setting on the Recognition processing page.
Default journal name	Select the journal name for journals that are created from revenue and expense deferral processes, such as recognition processing.
Recognition journal line description	Select the description that appears in the journal voucher line description: Schedule line dates – Show the schedule line dates in the journal line description. Originating transaction details – Show the originating transaction information in the journal line description. Example: USMF-0001, CIV-00839, Software Revenue
Number sequences tab	Use this tab to set the default values for lease number sequences. The number sequence generation wizard is used to automatically generate and assign number sequences. You don't have to change the number sequence unless you want to make manual changes to the generated number sequences.
Schedule number	The number that is sequence used for deferral schedules.

Deferral templates

Use the Deferral templates page to define straight-line templates that are used for deferral schedules.

Here are some of the advantages of using a template:

The length of the deferral is automatically calculated.
You allow for deferral schedules that have periods where the recognition is skipped.
You can automate deferrals by assigning the template to a product, a product group, a product category, customers, or a customer group. Template assignment is done from the Deferral defaults page.

Several period frequencies are available for templates: daily, monthly, or fiscal periods.

The template lines consist of a type (Recognized or Skipped) and the period length. Skipped lines have an amount of 0 (zero) on the deferral schedule lines. This behavior can be useful if you don't want to recognize revenue in all periods.

Create a deferral template

To create a deferral template, follow these steps.

On the Deferral templates page, select New.
In the Template field, enter a name.
In the Description field, enter a description.
In the Period frequency field, select the period frequency.
Select Add to add a line to the top of the list of lines, or select Append to add a line to the bottom of the list.
In the Type field, select the type of period.
In the Period length field, specify the length of the period.
Repeat steps 5 through 7 for each additional line that you require.
Select Save.

Deferral defaults

Use the Deferral defaults page to set up default deferral accounts for items and to assign default templates to deferrable items. You can also set up deferral accounts for charges and assign templates to the deferrable charges.

Defer by item

For transactions that have an item (for example, sales orders), you can assign accounts and templates to specific items and customers. These settings will be used as default values when a transaction is deferred. To make the transaction deferrable by default, you must set up the items on the Deferrable items page.

Defer by account

For transactions that don't have items (for example, general journals), you can specify the deferral accounts. When these accounts are used on a transaction line, the transaction is automatically marked as deferred. The corresponding template and recognition account will be assigned to the transaction line.

All transaction types (for example, on the Sales order, Purchasing, and General journal tabs)

The accounts on the page are the main accounts that don't have financial dimensions. The financial dimensions of the recognition account are from the customer or item, based on your organization.

Each template line must have either a straight line template or an event based template. It can't have both.

For sales orders

To specify the deferral default values for sales orders, follow these steps.

On the Sales order tab, select the deferral type.
Select Add to add a line.
In the Item code field, select the item code. The item code determines how the deferral default values are applied.
Specify how the item code is applied:
- If the Item code field is set to Table or Group, select the item relation in the Item relation field.
- If the Item code field is set to Category, select the category relation in the Category relation.
- If the Item code field is set to All, the default values apply to all applicable records.
Specify how the account code is applied:
- If the Account code field is set to Table or Group, select the account relation in the Account relation field.
- If the Account code field is set to All, the account applies to all records.
In the Main account field, select the main account for the deferral.
If the Deferral posting method field is set to Profit and loss, select the initial revenue account in the Initial revenue account field and the revenue offset account in the Revenue offset account field.
If the Short-term deferral method field is set to Rolling periods or Fixed year, select the short-term deferral account in the Short-term deferral account field.
For a template, you can select Add to add a line.
In the Item code field, select the item code.
Specify how the item code is applied:
- If the Item code field is set to Table or Group, select the item relation in the Item relation field.
- If the Item code field is set to Category, select the category relation in the Category relation field.
- If the Item code field is set to All, the default values apply to all applicable records.
Specify how the account code is applied:
- If the Account code field is set to Table or Group, select the account relation in the Account relation field.
- If the Account code field is set to All, the account applies to all applicable records.
- Select the straight line template in the Straight line template field or the event-based template in the Event based template field.
Select Save.

For purchase orders

To specify the deferral default values for purchase orders, follow these steps.

On the Purchasing tab, select the deferral type.
Select Add to add a line.
In the Item code field, select the item code.
Specify how the item code is applied:
- If the Item code field is set to Table or Group, select the item relation in the Item relation field.
- If the Item code field is set to Category, select the category relation in the Category relation field.
- If the Item code field is set to All, the default values apply to all applicable records.
Specify how the account code is applied:
- If the Account code field is set to Table or Group, select the account relation in the Account relation field.
- If the Account code field is set to All, the account applies to all applicable records.
In the Main account field, select the main account for the deferral.
If the Deferral posting method field is set to Profit and loss, select the initial revenue account in the Initial revenue account field and the revenue offset account in the Revenue offset account field.
If the Short-term deferral method field is set to Rolling periods or Fixed year, select the short-term deferral account in the Short-term deferral account field.
For a template, select Add to add a line.
In the Item code field, select the item code.
Specify how the item code is applied:
- If the Item code field is set to Table or Group, select the item relation in the Item relation field.
- If the Item code field is set to Category, select the category relation in the Category relation field.
- If the Item code field is set to All, the default values apply to all applicable records.
Specify how the account code is applied:
- If the Account code field is set to Table or Group, select the account relation in the Account relation.
- If the Account code field is set to All, the account applies to all applicable records.
- Select the straight line template in the Straight line template field or the event-based template in the Event based template field.
Select Save.

For general journals

To specify the deferral default values for general journal entries, follow these steps.

Select the General journal tab.
For a deferral, select Add to add a line.
If the Short-term deferral method field is set to Rolling periods or Fixed year, select the short-term deferral account in the Short-term deferral account field.
In the Deferral account field, select the deferral account.
In the Recognition account field, select the recognition account.
If the Deferral posting method field is set to Profit and loss, select the initial revenue account in the Initial revenue account field and the revenue offset account in the Revenue offset account field.
Select the straight line template in the Straight line template field or the event-based template in the Event based template field.
Select Save.

For free text invoices

To specify the deferral default values for free text invoices, follow these steps.

Select the Free text invoice tab.
For a deferral, select Add to add a line.
Specify how the account code is applied:
- If the Account code field is set to Table or Group, select the account relation in the Account relation field.
- If the Account code field is set to All, the account code applies to all applicable records.
In the Deferral account field, select the deferral account.
If the Short-term deferral method field is set to Rolling periods or Fixed year, select the short-term deferral account in the Short-term deferral account field.
In the Recognition account field, select the recognition account.
If the Deferral posting method field is set to Profit and loss, select the initial revenue account in the Initial revenue account field and the revenue offset account in the Revenue offset account field.
Select the straight line template in the Straight line template field or the event-based template in the Event based template field.
Select Save.

For invoice journals

To specify the deferral default values for invoice journal entries, follow these steps.

Select the Invoice journal tab.
For a deferral, select Add to add a line.
Specify how the account code is applied:
- If the Account code field is set to Table or Group, select the account relation in the Account relation field.
- If the Account code field is set to All, the account code applies to all applicable records.
In the Deferral account field, select the deferral account.
If the Short-term deferral method field is set to Rolling periods or Fixed year, select the short-term deferral account in the Short-term deferral account field.
In the Recognition account field, select the recognition account.
If the Deferral posting method field is set to Profit and loss, select the initial revenue account in the Initial revenue account field and the revenue offset account in the Revenue offset account field.
Select the straight line template in the Straight line template field or the event-based template in the Event based template field.
Select Save.

Items that are deferred by default

Use the Items deferred by default page to define which items are deferred by default. You can set up the types of transactions that the items will be deferred for. You can specify whether a single item is deferred, or a whole item group or category.

When you set up items as deferred, select the default accounts and templates on the Deferral defaults page. If the accounts and templates aren't selected, transaction lines where those items are entered won't be deferred.

For items that are deferred based on the sales or purchasing category that they are associated with, the deferral settings are based on the category. However, if the category isn't selected in the Category relation field, the deferral settings of the category that is higher in rank are used. For example, you add a Home video sales category but not a Television sales category. When you add a deferral item that is associated with the Television category, the deferral settings of the Home video are used for the item.

Set up deferred items

To set up items that are deferred by default, follow these steps.

On the Items deferred by default page, select the tab that you want: Sales order or Purchasing.
Select Add to add a line.
In the Item code field, select the item code.
Specify how the item code is applied:
- If the Item code field is set to Group or Table, select the item relation in the Item relation field.
- If the Item code field is set to Category, select the category relation in the Category relation field.
Repeat steps 2 through 4 for each additional line that you require.
Select Save.

Deferred charges

Use the Deferral charges page to define which charges are deferred by default.

Note

Currently, deferrable charges are available for sales orders only.
Charges can be deferred at the line level only. To defer a charge at the sales order header level, you can set up the charge as a deferred item on a separate line on the sales order.
To defer a charge for a free text invoice, you must enter the charge as a separate deferred invoice line.
This functionality isn't available for support charges and the revenue split functionality.

Set up deferred charges

To set up deferred charges, follow these steps.

On the Deferral charges page, select Add to add a line.
In the Charge code field, select the charge code.
In the Charge relation field, select the charge relation.
Repeat steps 1 through 3 for each additional line that you require.
Select Save.

Event-based deferral templates

Use the Event based deferral templates page to define event-based deferral templates that you can use in deferral transactions and assign on the Deferral defaults page.

Create an event-based template

To create an event based deferral template, follow these steps.

On the Event based deferral templates page, select New.
In the Template field, enter a unique name for the template.
In the Description field, enter a description.
In the Allocation type field, select the allocation type:
- Variable amount – Allocate a specific amount for each line that is entered.
- Equal amount – Allocate the same amount for each line that is entered.
- Percentage – Allocate an amount that is based on the percentage value that is entered for each line.
- Percentage of completion – Allocate a cumulative completion value for each line that is entered.
- Variable quantity – Allocate a specific quantity for each line that is entered.
Set the Create separate events per unit option to Yes if you want each event line to be split evenly by the number of units on the invoice transaction. Set it to No if you don't want to split the event lines.
In the Expiration account field, select the expiration account.
Select Add to add a line to the top of the list of lines, or select Append to add a line to the bottom of the list.
In the Description field, enter a description of the event.
If the Allocation type field is set to Percentage, specify the allocation percentage in the Allocation percentage field. The percentage must be between 0 (zero) and 100. If you leave the Allocation percentage field blank, the percentage is considered 0. The sum of all percentages is shown in the Total percentage field at the bottom of the page and must equal 100.
In the Months to expiration field, specify the number of months that the event is valid. The expiration date on the transaction deferral is automatically entered based on this value.
Select the Recognize when posted checkbox to automatically recognize revenue when the transaction is posted. If you leave the checkbox cleared, the revenue must be manually recognized.
In the Recognition account field, select the recognition account for the event, if the event uses a different account than the whole deferral schedule. This field is used together with the Recognize when posted checkbox.
Repeat steps 7 through 12 for each additional line that you require.
Select Save.