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Community Explorer **

Unearned Revenue - Recording Transactions for Cash and Accrual Reporting

Financial planning firm provides service for an annual fee. The fee is billed quarterly in advance. Looking for guidance on how to properly report the following scenario in QBO:

 

Annual fee will be $4,800, paid $1,200 per quarter in advance. Firm needs to send client an invoice for the quarterly fee due in advance (it's not an invoice for service already performed, but instead an invoice for advanced payment due for services to be performed).

 

New client's first payment is due on 11/1/18 and covers the period 11/1/18 through 1/31/19.

 

Firm needs both cash basis and accrual basis financial reporting as of 12/31/18:

  • Cash basis income should be $1,200 (actual amount received).
  • Accrual basis income should be $800 (2/3 of the retainer is earned from 11/1/18 through 12/31/18)

I've read some of the previous discussions on unearned revenues and issues with JE's, but I'm having some trouble making it all work in my scenario. I would appreciate any guidance on the following steps:

  1. invoice to client for the quarterly fee to be paid in advance
  2. payment received by client for quarterly fee in advance
  3. Steps required on 12/31/18 to move unearned revenue to income account and have the proper cash/accrual amounts reported.

Thanks in advance.  

1 Comment
Established Community Backer ***

Re: Unearned Revenue - Recording Transactions for Cash and Accrual Reporting

cash and accrual, you can't have the same income posted as both.

 

If the retainer is non refundable, then it is income when received. If the retainer is refundable, you fail to provide the service or the customer can call up and cancel, then the retainer is a liability and booked as deferred income.

QB is accrual accounting it reports on cash basis if you wish.


create a liability account named deferred revenue
create a service item named the for the service and link it to the deferred revenue account

 

use that item on the quarterly invoice
monthly do a journal entry, you can schedule it if you want, debit deferred income for the monthly amount, and credit service income