How to Record Deferred Revenue in QuickBooks Online/Desktop

To record deferred payments in QuickBooks Desktop, you’ll need to create a deferred revenue liability account, record the advance payment by crediting the Deferred Revenue account. Once the  product or service is delivered, create a journal entry to recognize the revenue by crediting the appropriate income account and debiting the Deferred Revenue account.

Deferred revenue is also known as unearned revenue, which represents the advance payments made for the products or services that are yet to be delivered. The amount paid by the customer is considered a liability on your balance sheet; once the products or services are delivered, the amount paid in advance by the customer will turn into an income.

Recording Deferred Revenue in QuickBooks Online

To record deferred revenue in QuickBooks online, you need to create a deferred revenue account as a liability, then create a product or service, record the initial paid amount as a liability, and recognize it as income when the product or service is delivered.

Step 1: Setting Up Deferred Revenue Liability Accounts

1. Click the , then select Chart of Accounts 
2. Click on New 
3. Choose Other Current Liabilities from the Account Type dropdown menu
4. Select Trust Accounts – Liabilities as the Detail Type.
5. Rename the Liability account as “Deferred Revenue” 
6. Click Save & Close 

Step 2: Record the Initial Payment

1. Record the initial payment in advance by creating Journal Entries
2. Click on Accounting and select the Make General Journal Entries
3. Debit the cash account (customer’s account) for the amount paid
4. Credit the deferred revenue account for the same amount 

The advance payment for the product or service will be recorded in the Deferred Revenue account as the liability until the product or service is delivered.

Step 3: Recognize Revenue as Products/Services are Delivered

1. Select Make General Journal Entries by clicking on Accounting  
2. Transfer the amount in Deferred Revenue to an Income account once the product or service is delivered
3. Debit the Deferred Revenue Liability account and credit the Income account  

Step 4: Create a Product or Service for Invoicing (Optional)

1. Click the , then select Products and Services 
2. Click on New
3. From the Product/Service information, choose what you want to record (eg, service)
4. Enter the name of the selected Product or Services
5. From the Income account, select the deferred revenue liability account created in Step 1
6. Click on Save & Close 

Recording Deferred Revenue in QuickBooks Desktop

Learn how to properly manage customer prepayments in QuickBooks by setting up deferred revenue and recognizing income as services are delivered.

Step 1: Create the Deferred Revenue Account

1. Click on Transactions, then select Chart of Accounts 
2. Create a New Account
3. Choose “Other Current Liabilities” from the “Account Type” dropdown menu.  
4. Select “Trust Accounts – Liabilities” from the “Detail Type” dropdown. 
5. Name the account Deferred Revenue
6. Click on Save & Close

Step 2: Record the Initial Receipt of Payment

1. Go to “Accounting” and select “Make General Journal Entries“
2. Record the prepayment made by the customer before the product or services are delivered:
   • Debit the cash account (customer’s account) for the amount paid
   • Credit the deferred revenue account for the same amount 
3. Mark the full payment as Paid 
4. Add a descriptive note to the journal entry
5. Save the journal entry

Step 3: Recognize the Revenue as Services/Products are Delivered

1. Go to “Accounting” and select “Make General Journal Entries“
2. Once the products or services are delivered to the customers, create the journal entry to:
   • Debit the deferred revenue account for the amount of revenue earned.
   • Credit the appropriate income account for the same amount 
3. Add a note indicating the revenue recognized. 
4. Save the journal entry

Manual Journal Entries to Records Deferred Revenue

Manual journal entries are essential for accurately recording deferred revenue, which occurs when a company receives prepayment before delivering goods or services. Create a journal entry that reflects both the receipt of funds and the corresponding obligation, as it is important to document this transaction.

In this entry, we debit the cash or accounts receivable account for the amount received. This shows that the company has more resources available. Simultaneously, the deferred revenue liability account is credited, which shows the company’s responsibility to provide the promised products or services for which they have received the advance payment.

For example, when a software company receives a payment of $10,000 for an annual subscription, the accounting process begins by debiting the cash account for that amount, reflecting the inflow of cash and a credit entry is made to the deferred revenue account, indicating that the company has a liability to provide service in the future.

As the company delivers the product/service to the consumer over the course of the year, it gradually recognizes this revenue through monthly accounting entries, which convert the deferred revenue into earned income. These entries ensure compliance with accounting standards and provide an accurate picture of future earned revenue.

Is the Deferred Revenue a Current Liability?

Deferred revenue is classified as a current liability rather than a long-term liability because it indicates obligations that are likely to be completed within 12 months. Generally, deferred revenue arises from advance payments for goods or services that a business intends to deliver within the following year.

Labeling deferred revenue as a current liability clearly represents a company’s short-term financial health. It shows ongoing obligations that must be monitored as items on the balance sheet until the performance commitments are fulfilled.

Bottom Line

Deferred revenue represents advance payments received for goods or services yet to be delivered and must be recorded as a current liability in QuickBooks. Properly tracking and recognizing deferred revenue ensures accurate financial reporting and compliance with accounting standards.

FAQs

What is deferred revenue?

Deferred revenue is an advance payment a company receives for products or services that have not yet been delivered, recorded as a liability until the company fulfills its obligations and recognizes it as income. It ensures revenue is only recognized when earned, reflecting the company’s outstanding obligations accurately.

How should deferred revenue be recorded?

Record deferred revenue as a liability when payment is received in advance, then gradually recognize it as income through journal entries as the company fulfills its delivery or service obligations, ensuring compliance with revenue recognition principles.

What is the journal entry for recording deferred revenue?

When receiving advance payment: Debit Cash and Credit Deferred Revenue (liability). When earning the revenue: Debit Deferred Revenue and Credit the appropriate Income account.

What is the difference between deferred revenue and unearned revenue?

Deferred revenue is a broader term covering both short-term and long-term liabilities for advance payments, while unearned revenue typically refers to the short-term portion expected to be earned within one year. Both represent advance payments for goods or services not yet delivered and are often used interchangeably.

Disclaimer: The information outlined above for “How to Record Deferred Revenue in QuickBooks Online/Desktop” is applicable to all supported versions, including QuickBooks Desktop Pro, Premier, Accountant, and Enterprise. It is designed to work with operating systems such as Windows 7, 10, and 11, as well as macOS.