Unbilled Revenue: Examples

Use the unbilled revenue feature when you want to recognize the entire amount of a contract on the balance sheet as unbilled revenue. The other side of the entry is charged to either a revenue or deferred revenue account, depending on the accounting requirements for the transaction. When you recognized unbilled revenue in this way, the customer invoices draw down the unbilled amount and update accounts receivable. No revenue recognition happens at the time of invoicing as the revenue was either recognized when the unbilled amount was posted or will be recognized based deferral recognition schedule that was set up.

Basic Example

A billing schedule is created with the following information: 

• Contract length: 3 years
• Amount: 1280.00
• Start date: January 1, 2019
• Includes licenses, consulting services, and maintenance agreement
• Annual invoice in advance is 420.00 per year

The following table shows the setup: 

Item	Amount	Unbilled Revenue	Deferral Item	Description
License	300.00	Yes	No	The license cost is recognized immediately, and will be invoiced over the life of the contract. The unvoiced amount is recorded to the unbilled revenue account.
Consulting Services	900.00	Yes	Yes	The service revenue is deferred and recognized when it is used. The total services amount is recorded in the unbilled revenue account and will be invoiced annually.
Maintenance	60.00	No	Yes	The maintenance fees are invoiced once a year immediately. The annual maintenance amount is deferred and recognized monthly.
Setup Fees	20.00	No	No	One-time setup fee charge

The initial journal entry for the contract is as follows: 

Account		Debit	Credit
January 1, 2019
Debit Unbilled Revenue		1,200.00
	Credit License Revenue		300.00
	Credit Deferred Consulting Revenue	900.00

Journal entries are created only for the item that has the unbilled revenue option selected. The deferral schedule for 900.00 is created at the same time.

The following table shows the invoices and revenue recognition for the first year.

Account		Debit	Credit	Description
January 1, 2019
Debit Accounts Receivable		340.00
	Credit Unbilled Revenue		100.00	License
	Credit Unbilled Revenue		200.00	Consulting Services
	Credit Deferred Maintenance Revenue		20.00	Maintenance
	Credit Setup Fee revenue		20.00	Setup Fee

The Maintenance item is deferred for a year, and the deferral schedule is created with the monthly revenue recognized. For the next two years , the invoices and deferral schedules will be created similar to the first year, except the setup fee is not added because it is for the first year only.

Deferral Example

A billing schedule has the following items: 

Item	Price	Discount	Unbilled Revenue	Deferral Item
A	100.00	10.00	Y	Y
B	200.00	20.00	Y	N
C	50.00	5.00	N	Y
D	50.00	5.00	N	N

The initial journal entry for the contract is as follows: 

Account		Debit	Credit	Description
Debit Unbilled Revenue		300.00
	Credit Revenue		200.00	Non-deferrable item with unbilled revenue Item B only.
	Credit Deferred Revenue		50.00	Deferrable item with unbilled revenue Item A only.
	Credit Unbilled Discount		30.00	Discount of the item with unbilled revenue Items A and B.

The invoice is as follows: 

Account		Debit	Credit	Description
Debit Accounts Receivable		360.00
Debit Unbilled Discount		30.00		Discount of the item with unbilled revenue Items A and B.
Debit Discount		10.00		Discount of the item without unbilled revenue Items C and D.
	Credit Unbilled Revenue		300.00	Items with unbilled revenue , deferred and non-deferred Items A and B.
	Credit Deferred Revenue		50.00	Deferrable item without unbilled revenue Item C only.
	Credit Revenue		50.00	Non-deferrable item without unbilled revenue Item D only.

Deferral with Short-Term/Long-Term

When the short-term or long-term deferrals feature is used and an item is deferrable, the deferred revenue account is substituted with the short-term and long-term deferred revenue accounts. The calculations for the short-term and long-term split are the same based on the Short-term Deferral Method selected on the SBS ARED Advanced Revenue & Expense Deferrals Setup (rolling period or fixed years).

For example, a billing schedule has a deferral Item A with the following: 

• Deferred for 24 months
• Price is 100.00 per month, with 10.00 discount
• Short-term unbilled method is rolling period

The initial journal entry for the contract is as follows: 

Account		Debit	Credit
Debit Unbilled Revenue		24,000.00
	Credit Short-Term Deferred Revenue		12,000.00
	Credit Long Term Deferred Revenue		12,000.00
Debit Short Term Deferred Discount		1,200.00
Debit Long Term Deferred Discount		1,200.00
	Credit Unbilled Discount		2,400.00

The invoice is as follows: 

Account		Debit	Credit
Debit Accounts Receivable		90.00
	Credit Unbilled Revenue		100.00
Debit Unbilled Discount		10.00

Deferral with Profit & Loss

When the Deferral Posting Method is set to Profit & Loss on the SBS ARED Advanced Revenue & Expense Deferrals Setup and the item is deferrable, the deferred revenue account is substituted with the profit and loss account.

For example, a billing schedule has a deferral Item A with the following: 

• Deferred for 12 months
• Price is 100.00 per month, with 10.00 discount

The initial journal entry for the contract is as follows: 

Account		Debit	Credit	Description
Debit Unbilled Revenue		12,000.00
	Credit Initial Account		12,000.00
Debit Offset Account		12,000.00
	Credit Deferred Revenue		12,000.00
	Credit Unbilled Discount			12,000.00
Debit Deferred Discount		12,000.00

The invoice is as follows: 

Account		Debit	Credit	Description
Debit AR		90.00
	Credit Unbilled Revenue		100.00
Debit Unbilled Discount		10.00

Termination Example

The following table shows the information for a billing schedule contract that has been terminated.

Item	Contract Amount	Unbilled Revenue	Deferrable	Billing Period	Billing Amount
License	300.00	Yes	No	January 1, 2019 – December 31, 2021	100.00 a year
Maintenance	60.00	No	Yes	January 1, 2019 – December 31, 2021	20.00 a year
Support	150.00	Yes	Yes	January 1, 2019 – December 31, 2021	50.00 a year
Equipment Rental	360.00	No	No	January 1, 2019 – December 31, 2021	10.00 a month

The initial journal entry for the contract is as follows: 

Account		Debit	Credit	Description
January 1, 2019
Debit Unbilled Revenue		300.00		License
	Credit Revenue		300.00
Debit Unbilled Revenue		150.00		Support
	Credit Deferred Revenue		150.00

The deferral schedule for the Support item (150.00) is also created at the same time.

The following table shows two annual invoices.

Account		Debit	Credit	Description
January 1, 2019 and January 1, 2020
Debit Accounts Receivable		180.00
	Credit Unbilled Revenue		100.00	License
	Credit Deferred Revenue		210.00	Maintenance
	Credit Unbilled Revenue		50.00	Support
	Credit Revenue		10.00	Equipment Rental

The monthly invoice is as follows: 

Account		Debit	Credit	Description
Feb 1, 2019 – Dec 1, 2019 and Feb 1, 2020 – Sep 30, 2020
Debit Accounts Receivable		10.00
	Credit Revenue		10.00	Equipment Rental

Deferral schedules are created for the Maintenance and Support items.

• 2019 - both items are deferred for the year and recognized fully
• 2020 - both items are deferred for the year and recognized up until September 30, 2020

The billing schedule is to be terminated with the termination date of October 10, 2020. The General Ledger account balances before termination are as follows: 

Licenses	Description
Unbilled Revenue:	300.00 (initial JE) - 200.00 (invoiced) = 100.00
Revenue:	300.00 (initial JE)
Unbilled Revenue:	Until December 2021 (Reverse October 11 – December 31, 2021)
Invoiced:	Until December 2020 (Refund for October 11 – December 31)
Revenue:	Until December 2020 (Reverse October 11 – December 31)
Support:
Unbilled Revenue:	150.00 (initial JE) - 100.00 (invoiced) = 50.00
Revenue:	87.50 (recognized)
Deferred Revenue:	150.00 (deferred)- 88.00 (recognized) = 62.00
Unbilled Revenue:	Until December 2021 (Reverse October 11 – December 31, 2021)
Invoiced:	Until December 2020 (Refund for October 11 – December 31)
Revenue:	Until September 2020 (Recognize October 1 – October 10)
Deferred Revenue:	Until December 2020 (Reverse October 11 – December 31)
Maintenance:
Revenue:	35.00 (recognized)
Deferred Revenue:	40.00 (deferred) - 35.00 (recognized) = 5.00
Invoiced:	Until December 2020 (Refund for October 11 – December 31)
Revenue:	Until September 2020 (Recognize October 1 – October 10)
Deferred Revenue:	Until December 2020 (Reverse October 11 – December 31)
Equipment:
Revenue:	210.00 (invoiced)
Invoiced:	Until September 2020 (Invoice for October 1 - October 10)
Revenue:	Until September 2020 (Recognize October 1 – October 10)

Licenses ad Support

When the billing schedule is terminated, the unbilled revenue journal entry is reversed to clear the unbilled revenue account balance. The offset account for the journal entries is revenue or deferred revenue, as was used initially.

Licenses:

• 300.00 recorded until December 2021
• 122.00 reverse October 11 – December 31, 2021 - 300.00 / 36 month x (14 month + 20/ 30 days)

Support:

• 150.00 recorded until December 2021
• 61.11 reverse October 11 – December 31, 2021 - 150 / 36 month x (14 month + 20/ 30 days)

Debit Revenue		122.00		License
	Credit Unbilled Revenue		122.00
Debit Deferred Revenue		61.11		Support
	Credit Unbilled Revenue		61.11

Support

The Support item, which has a deferral schedule is adjusted to be shortened up to the termination date of October 10, 2020. The deferral schedule for the Support item is adjusted as follows: 

• Deferred Revenue: 150.00 until December 2021
• Recognized Revenue: 87.50 until September 2020
• Unrecognized Revenue: 62.00

The schedule is shorten to October 10, 2020. The last revenue recognition is run for the period October 1 - October 10, 2020 to recognize revenue of 1.38 (150 / 36 month x 10/30 days).

Maintenance

The Maintenance item, which has a deferral schedule is adjusted to be shortened up to the termination date of October 10, 2020. The last revenue recognition is run for the period October 1 - October 10, 2020 to recognize revenue of 0.56 (60 / 36 month x 10/30 days).

Invoices for the Licenses, Support, and Maintenance created until December 2020. The refund (credit memo) is to be created as follows: 

Account		Debit	Credit	Description
October 10, 2020
Revenue		22.00		License - 100.00 / 12 month x 2 month x 20/30 days
Debit Deferred Revenue		4.44		Maintenance - 20.00 / 12 month x 2 month x 20/30 days
Debit Unbilled Revenue		11.12		Support - 50.00 / 112 month x 2 month x 20/30 days
	Credit Accounts Receivables		37.56

An invoice for the Equipment Rental is created until the end of September 2020. A last invoice for the period October 1 - October 10 is created: 

Account		Debit	Credit	Description
October 1, 2020
Debit Accounts Receivables		3.33
	Credit Revenue		3.33	10 / 30 days x 10 days

The General Ledger balances after the termination are as follows:

Licenses	Description
Unbilled Revenue:	300.00 (initial JE) - 200.00 (invoiced) - 122.00 (reversed) + 22.00 (refund) = 0.00
Revenue:	300.00 (initial JE) - 122.00 (reversed) = 178.00 – revenue from January 1, 2019 to October 10, 2020
AR:	200.00 (invoiced) - 22.00 (refund) = 178.00 – invoiced from January 1, 2019 to October 10, 2020
Support:
Unbilled Revenue:	150.00 (initial JE) - 100.00 (invoiced) - 61.00 (reversed) + 11.00 (refund) = 0.00
Revenue:	87.50 (recognized) + 1.38 (to be recognized) = 88.88 – revenue January 1, 2019 to October 10, 2020
AR:	100.00 (invoiced) - 11.12 (refund) = 88.88 – invoiced January 1, 2019 to October 10, 2020
Deferred Revenue:	150.00 (deferred)- 87.50 (recognized) - 61.11 (reversed) - 1.38 (to be recognized) = 0.00
Maintenance:
Revenue:	35.00 (recognized) + 0.56 (to be recognized) = 36.56 revenue January 1, 2019 to October 10, 2020
Deferred Revenue:	40.00 (deferred)- 35.00 (recognized) - 4.44 (refund) - 0.56 (to be recognized) = 0.00
AR:	40.00 (invoiced) - 4.44 (refund) = 35.56 – invoiced January 1, 2019 to October 10, 2020
Equipment:
Revenue:	210.00 (invoiced) + 3.33 (to be invoiced) = 213.33– invoiced January 1, 2019 to October 10, 2020
AR:	210.00 (invoiced) + 3.33 (to be invoiced) = 213.33– revenue January 1, 2019 to October 10, 2020

Proation Methods

When the amount for a partial period is calculated, one of the following proration calculation methods can be used for calculating refunds and adjustments : Monthly or Daily.

For example, a billing schedule for an item is as follows:

• Length of 36 months
• Item price is 300.00
• Start date is January 01, 2019
• Termination date is October 10, 2019

With Monthly proration, the refund is calculated as follows: 

With Daily proration, the refund is calculated as follows: 

Contract Modification Example

A billing schedule from January 01, 2019 to December 31, 2021, has the following information: 

Item	Qty	Unit Price	Contract Amount	Unbilled Revenue	Deferrable	Billing Amount
License A	20	20.00	14,400.00	Yes	No	4,800.00 a year
Support A	20	10.00	7,200.00	Yes	Yes	2,400.00 a year

The initial journal entries are as follows: 

Account		Debit	Credit	Description
January 1, 2019
Debit Unbilled Revenue		14,400.00		License A
	Credit Revenue		14,400.00
Debit Unbilled Revenue		7,200.00		Support A
	Credit Deferred Revenue		7,200.00

A deferral schedule for 7,200.00 for the Support A item is created at the same time.

Two annual invoices are created.

Account		Debit	Credit	Description
January 1, 2019 and January 1, 2020
Debit Accounts Receivable		7,200.00
	Credit Unbilled Revenue		4,800.00	License A
	Credit Unbilled Revenue		2,400.00	Support A

The deferral schedules for the Support A item are as follows: 

• 2019 – recognized fully.
• 2020 – recognized up until Sep 30, 2020.

On October 1, 2020, the billing schedule is changed as follows: 

License and Support quantities changed to 10 and two more items are added. The billing period for the new items is October 1, 2020 to December 31, 2021 (aligned to the original items).

Item	Qty	Unit Price	Contract Amount	Unbilled Revenue	Deferrable	Billing Amount
License B	10	15.00	22,500.00	Yes	No	1,800.00 a year
Support B	10	5.00	750.00	Yes	Yes	600.00 a year

The additional journal entries are as follows: 

Account		Debit	Credit	Description
October 1, 2020
Debit Unbilled Revenue		23,250.00
	Credit Revenue		22,500.00	License B
	Credit Deferred Revenue		750.00	Support B

A deferral schedule for 750.00 for the Support B item is created at the same time.

Adjustments for License A and Support A are as follows: 

Account		Debit	Credit	Description
October 1, 2020
Debit Revenue		6,000.00		20 x 20.00 x 15 months - old amount License A
	Credit Unbilled Revenue		6,000.00
Debit Unbilled Revenue		3,000.00		10 x 20.00 x 15 months - new amount License A
	Credit Revenue		3,000.00
Debit Deferred Revenue		3,000.00		20 x 10.00 x 15 months - old amount Support A
	Credit Unbilled Revenue		3,000.00
Debit Unbilled Revenue		1,500.00		10 x 10.00 x 15 months - new amount Support A
	Credit Deferred Revenue		1,500.00

The deferral schedule for Support A item is adjusted.

• Adjust the deferral amount of Support A schedule (3,000.00 old amount - 1,500.00 new amount) to be reduced by 1,500.00 from October 1, 2020.

1,500.00 /15 = 100.00 – remaining periods get reduced by 100.00 which is the same as 10.00 x 10 qty = 100.00 new monthly deferred amount after the contract modification.

Note: If the October period is recognized, reverse the recognition journal entries for October so that the new amount can be recognized.

Since the invoice for License A and Support A was created for the entire year, the refund (credit memo) is created to refund the over-invoiced amount.

Account		Debit	Credit	Description
October 1, 2020
Unbilled Revenue		600.00		License - 20.00 x (20-10) x 3 months
Dr Unbilled Revenue		300.00		Support - 20.00 x (20-10) x 3 months
	Cr AR		900.00

The annual invoices for the third year are as follows: 

Account		Debit	Credit	Description
January 1, 2021
Debit Accounts Receivables		6,000.00
	Credit Unbilled Revenue		2,400.00	License A
	Credit Unbilled Revenue		1,200.00	Support A
	Credit Unbilled Revenue		1,800.00	License B
	Credit Unbilled Revenue		600.00	Support B