Prepayment accounting best practice

Rpmerritt57Rpmerritt57 Member Posts: 5

Hello. I'm new at this so hope i'm making sense. I have a service business and we're about 2 years old. We charge our 50 or so customers a monthly fee but ask them to prepay either for the year or for half the year. Of course most do half the year as we don't apply any financing for that mode. I understand that I should be creating some kind of account for that customers prepayment and then earning the fees as we provide the service. This seems complicated and time consuming and I'm not sure Wave has an easy procedure. Thoughts anyone? Bob

Comments

  • MikegMikeg Member Posts: 995 ✭✭✭

    Bob,
    Wave is not able to do what is often referred to as subscription accounting. I have a client in the same situation except some pay monthly and others pre pay. I think the easiest way to handle this is to keep a spreadsheet of you subscriptions and computation of income earned. So your customers would be in the rows and months in the columns. Use the formulas to compute the monthly revenue. Back to Wave, all deposits should be coded to a liability Deferred Revenue. Once a month do a journal entry to record revenue based upon your spreadsheet. Fairly simple.

    Keep me in mind if your looking for a CPA
    Mike G, CPA
    www.mgfinancial.net

  • Rpmerritt57Rpmerritt57 Member Posts: 5

    Thanks Mike. Would Quickbooks be better at this subscription earnings issue? I guess next i'll try to figure out this Deferred Revenue and Journal entries. Bob

  • MikegMikeg Member Posts: 995 ✭✭✭

    Bob,
    I do not believe so. You can search Quickbooks community, but I don't think there is an automatic feature where you can recognize revenue based upon dates entered on an invoice. Again, the above is a fairly simple method.
    The steps would be code all deposits to Deferred Revenue
    Create a spreadsheet that details by month the amount of revenue to recognize
    Monthly journal entry would be
    Debit - Deferred Revenue XXXX
    Credit - Sales XXXX
    (To record revenue for May)

    Need a CPA? Keep me in mind.
    Mike G, CPA
    www.mgfinancial.net

  • Rpmerritt57Rpmerritt57 Member Posts: 5

    Mike; sorry to belabor this but another question. to set up a Deferred Revenue new acct do I go to Chart of Accts, Add an Acct, Liability/credit card, Current Liability,Current Debt, Deposits Received? guess you have to assume I'm a 4 year old.

  • MikegMikeg Member Posts: 995 ✭✭✭
    Bob,
    I would add as a current liability.
    Mike G, CPA
    www.mgfinancial.net
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