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Michael7s
Level 1

Why is quickbooks reporting and recording deferred revenue as a negative balance?

When customers pay in advance for six months of use of a product, we record the deposit in a deferred revenue account (Other Current Liabilities).   We then use a recurring journal entry to move portions of the payment by debit to the deferred revenue account and a credit to the product account (Income account).  This process appears to be standard practice.  

 

Yet Quickbooks Online records this as a negative balance in the deferred revenue account, and also reports a negative total in the liabilities section of the balance sheet

 

So for example, a customer buys $10,000 of pretzels to be delivered over 10 months.  The bank deposit comes in and we record the $10,000 in the Deferred Revenue Prepaid Pretzels account (A liability account according to the chart of accounts).  Each month, a recurring journal entry DEBITS the  Deferred Revenue Prepaid Pretzels account $1,000 and Credits the Pretzel Sales account (an Income account according to the chart of accounts). 

 

After two months, we see a negative balance of $8,000 (-$8000) in the Deferred Revenue Prepaid Pretzels account and that amount also shows up under "Liabilities" on the balance sheet as a NEGATIVE number. 

 

Most accounting guidelines suggest that I'm doing something wrong here, but I can't figure out what.  

 

Ideas?  Thanks!

2 Comments 2
Rustler
Level 15

Why is quickbooks reporting and recording deferred revenue as a negative balance?

The procedure you are using is correct

 

If the deferred revenue account is showing an actual negative number on the balance sheet, -8,000 in other words I would run an account report and set the date range to ALL.  Then scan down the list to insure all journal entries that should be there, are there.

Samuelgill
Level 1

Why is quickbooks reporting and recording deferred revenue as a negative balance?

This means that typically the initial entry denoting the prepaid expense will not affect a company's financial statements because the service or product has not ...
 

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