QuickBooks HelpQuickBooksHelpIntuit

Set up a revenue recognition schedule in QuickBooks Online Advanced

by Intuit Updated 3 weeks ago

Learn how to set up an automatic schedule to help with revenue recognition in QuickBooks Online Advanced. 

Revenue Recognition is a generally accepted accounting principle (GAAP) that defines how and when you recognise revenue. For all businesses on an accrual basis, revenue is recognised when it’s earned, not when money is exchanged. A common scenario for this is a pre-paid or subscription service.

Why Revenue Recognition is important

Here are some business models that may use revenue recognition.

Business ModelProduct or Service example
Subscription basedA wine club charges a membership fee on top of subscription fees and wants to recognise the membership revenue upfront but defers ‌wine subscription revenue until they can deliver to the customer.
Project based / contractorsA project-based business or a contractor, who charges their customers upfront, wants to recognise some of the revenue only when that part of the job is complete.
SoftwareA hosted software company that charges R240 yearly and recognises R20 every month until the software agreement ends.
E-commerceE-commerce businesses receive payment upfront but recognise the revenue upon delivery.
Pre-paid BillingAn insurance company charges an annual premium at a discount, but the revenue is recognised monthly.
Consulting Services / Law FirmsA law firm charges its client a retainer fee before rendering services and wants to recognise the revenue only when the work is complete.

Find out about cash and accrual accounting methods in QuickBooks Online.

Set up revenue recognition to automatically schedule moving revenue from your chosen liability account to your chosen asset account. You can then take advantage of revenue reporting.

Step 1: Turn on revenue recognition

  1. Go to Settings Settings gear icon., then select Account and settings.
  2. Select Sales
  3. In Products and services, select Edit ✎.
  4. Turn on Revenue recognition.
  5. Select the Frequency: Daily or Monthly.
  6. Select Save, then Done.

Note: Revenue can now be recognised on a daily or monthly basis. 

Step 2: Add a service with revenue recognition 

  1. Go to Settings Settings gear icon. and select Products & services (Take me there). 
  2. Select New, then select Service.
    Note: If you're adding for the first time, select Add a product or service, then select Service.
  3. Fill out the details. 
  4. Select I recognise revenue for this product daily (or monthly).
    Note
    : The frequency will vary based on what you've selected in Step 1: Turn on revenue recognition.
  5. Select a Liability Account, and in Service Duration enter the number of days, weeks, months, or years over which the revenue should be recognised.
    Note: You can enter up to 3652 days for daily frequency, up to 521 weeks for weekly frequency, up to 120 months for monthly frequency, or up to 10 years for yearly frequency.
  6. Select a Service Interval from the dropdown ▼.
  7. Select Save and close

Step 3: Create an invoice with revenue recognition

Now, create an invoice for this service you just set up. The Service Date on the invoice will let QuickBooks know when to start the revenue recognition schedule.

  1. Go to + New and select Invoice
  2. Fill out your invoice details. Be sure to add the service you just created. 
  3. Under Service Date, select the date this service will start.
    Note: The service date can be after the close books date
  4. Select Save
  5. Next to the service line item, select View Revenue Recognition
  6. The schedule for your revenue recognition for that service displays.

QuickBooks Online automatically updates your revenue recognition schedule after you add a service with revenue recognition and create an invoice or sales receipt with revenue recognition. You can edit and customise your revenue recognition schedule, too. For example, adjust the service duration period for an item at a transaction level, adjust an entire schedule, or make changes to an item’s price. Each time you make changes, your revenue recognition schedule automatically adjusts.

Edit a service item’s duration at the transaction level

  1. Go to Sales and select Invoices (Take me there).
  2. Open an existing invoice with the service item to edit it, or select Create invoice.
  3. Fill out your invoice, including:
    • The name of the service under Product/Service.
    • The date the service starts under Service date. The service date can be after the close books date.
  4. When you’re done filling out your invoice, select Save.
  5. Select the View Revenue Recognition link.
  6. In the Revenue Recognition panel, select Edit.
  7. In the Service Duration field, enter a new period for your schedule.
    Note:
    • You can enter up to 3652 days for daily frequency, up to 521 weeks for weekly frequency, up to 120 months for monthly frequency, or up to 10 years for yearly frequency.
    • You can only edit posted entries that occur after the close books date.
  8. Review or revise your automatically updated schedule, then select Apply.

Edit a service item’s schedule at the transaction level

  1. Go to Sales and select Invoices (Take me there).
  2. Open an existing invoice with the service item to edit it, or select Create invoice.
  3. Fill out your invoice, including:
    • The name of the service under Product/Service.
    • The date the service starts under Service date. The service date can be after the close books date.
  4. When you’re done filling out your invoice, select Save.
  5. Select the View Revenue Recognition link.
  6. In the Revenue Recognition panel, select Edit.
  7. In the Amount Recognised column, change one or more values in the current schedule as long as it occurs after the close books date set under accounts and settings.
    Note: The schedule auto balances for open, unedited months.
  8. Review or revise your automatically updated schedule, then select Apply.

Edit a service item’s price at the transaction level

  1. Go to Sales and select Invoices (Take me there).
  2. Open an existing invoice with the service item to edit it, or select Create invoice.
  3. Fill out your invoice, including:
    • The name of the service under Product/Service.
    • The date the service starts under Service date. The service date can be after the close books date.
  4. Under Rate, enter a new price.
  5. When you’re done filling out your invoice, select Save
  6. Select the View Revenue Recognition link.
  7. Review or revise your automatically updated schedule. To make changes, select Edit.
    Note:
    • A new price higher than the original price automatically increases recognition amounts for future open months.
    • A new price lower than the original price, but still higher than the total amount recognised until now, reduces recognition amounts for future open months.
    • A new price lower than the total amount recognised until now, automatically shows a negative recognition amount in the current month.
    • To remove negative recognition amounts, manually adjust the amounts from the Revenue Recognition panel.
  8. Select Apply.

You can close or adjust an existing schedule and then issue a credit note or a refund receipt. For example, let’s say you’ve already recognised R200.00 for the service, but you want to issue a complete refund for R1200.00.

  1. Go to Sales and select Invoices (Take me there).
  2. Open an existing invoice to edit it.
  3. Select the View Revenue Recognition link.
  4. In the Revenue Recognition panel, select Edit.
  5. In the Schedule section, do one of the following actions:
    • Recognise now: This is available under More actions Image Alt Text. You can stop all future revenue recognition entries for the item by recognising all the remaining unrecognised amount in the current open month. In other words, post an amount to the entry so that the income account matches the total price of the item to close out a schedule.
      Note: Remember, in this example, you've already recognised R200.00 for the service, so you need to post R1,000. That way, the income account will total R1200.00. You also need to verify, in this example, that all future entries are zero amounts. When you issue a credit note for R1200, all the income is reversed. When you issue a credit note of R500, only R500 of the income is reversed.
    • Keep the schedule as it is.
    • Customise the schedule for your needs.
  6. Select Apply.
  7. Create and issue a credit note or a refund receipt.

Run the Revenue Recognition report

You can see the billed and recognised amounts in the Deferred Recognition Detail for each column. 

  1. Go to Reports (Take me there).
  2. In the search bar, search for and open Revenue Recognition Report

Customise or filter the report as you see fit. 

More about service interval and frequency 

Service Interval and Duration define how a company sells its product/service. For example: An annual subscription sold at R1200 can be set up as 12 months or 52 weeks.

Revenue Recognition Frequency is how often you recognise revenue for a product or service. It’s automatically set to monthly, but you can change it at any time. Once updated, it applies to all the future transactions. For example, an annual subscription sold at R1200 with a daily frequency will be prorated based on the number of days in a month.

Posting Frequency is when we post the recognised amounts to the books. We post all automatic revenue recognition entries at the end of the month.

How the posting frequency is calculated every month

For a service item that is priced at R1200, the recognised revenue will be automatically moved to the income account at the end of the month. The monthly recognised amount varies depending on the recognition frequency selected in Settings Settings gear icon.

Formula: Total price of the item / # of frequencies for the duration * # of frequencies per month.

Here's an example of how the recognised revenue is calculated and posted at the end of the month for different frequencies:

Frequency SelectedRecognised Amount (at the end of the month)
Monthly Example1200 / 12 * 1 = 100
Weekly Example
(when 4 weeks in a month)
(1200 / 52) * (4) = 92.30
Weekly Example
(when 5 weeks in a month)
(1200 / 52) * (5) = 115.38
Daily Example
(when 31 days in a month)
(1200 / 365) * 31 = 101.91
Daily Example
(when 28 days in a month)
(1200 / 365) * 28 = 92.05

Sign in now for personalized help

See articles customized for your product and join our large community of QuickBooks users.

More like this