Handling deferred revenue

[Mendelson]

We have a client that needs to recognize 'deferred contract revenue'.
The situation is as follows: they get contracts signed for what they
sell; delivery of their product happens about six months later. Since
they are legally obligated to fulfill the contract, their CPA wants to
recognize 'deferred contract revenue' as a liability when the contract
is signed (and a deposit is taken); the actual revenue is to be
recognized at the time of product delivery or sale.

Until now, what they are doing to handle this:
- write a Sales Order at the time of the contract, using a specific
item to track this signed contract
- at the end of each month, run an Open Sales Order by Item report to
get the total $$ open for this particular contract item
- make a journal entry adjustment for this amount to manaully record
the deferred revenue
- the journal entry is then reversed at the beginning of the subsequent
month to remove deferred revenue and leave it ready for the next month
end

In essence, this is just "for show", or for financial statement
purposes, that's all. So it's working now. However, it's not an
automated way and I want to make it automated, to avoid the reversing
journal entry--that's a manual process, something I like to avoid.

Any input on this is greatly appreciated. Thank you in advance.

 

[Allan Martin]

We have a client that needs to recognize 'deferred contract revenue'.
The situation is as follows: they get contracts signed for what they
sell; delivery of their product happens about six months later. Since
they are legally obligated to fulfill the contract, their CPA wants to
recognize 'deferred contract revenue' as a liability when the contract
is signed (and a deposit is taken); the actual revenue is to be
recognized at the time of product delivery or sale.

Until now, what they are doing to handle this:
- write a Sales Order at the time of the contract, using a specific
item to track this signed contract
- at the end of each month, run an Open Sales Order by Item report to
get the total $$ open for this particular contract item
- make a journal entry adjustment for this amount to manaully record
the deferred revenue
- the journal entry is then reversed at the beginning of the subsequent
month to remove deferred revenue and leave it ready for the next month
end

In essence, this is just "for show", or for financial statement
purposes, that's all. So it's working now. However, it's not an
automated way and I want to make it automated, to avoid the reversing
journal entry--that's a manual process, something I like to avoid.

Any input on this is greatly appreciated. Thank you in advance.

Give us an example the the journal entry you enter at the end of each month.
What are the debits and credits. It is unclear what you are trying to
accomplish.