In this article
Short-Term Deferral Calculation
The Short-term Deferral Method is set up on the SBS ARED Advanced Revenue & Expense Deferrals Setup page.
The amount for a short-term deferral is calculated as follows:
- If the short-term deferral method is set to None, the short-term deferral amount is zero (0.00).
- If the deferral schedule is event-based, the short-term deferral amount is zero (0.00).
- For other situations, the short-term deferral amount is calculated as the sum of the amounts for all lines that have a date between the start date and end date of the short-term deferral period.
View example.
- When revenue splitting is used, the short-term and long-term amounts are based on the contract revenue amount instead of the total contract amount.
Standard Short-Term Deferral Schedule
An invoice for 3,600.00 is posted on Feb. 1, 2016 and is deferred over 3 years with revenue recognized monthly. The fiscal year is 12 months.
The 3,600.00 is split between the short-term and long-term deferred revenue accounts. The following journal entries are created:
| Cash | 3,600.00 | ||
| Long-Term Deferred Revenue | 3,600.00 | ||
| Long-Term Deferred Revenue | 1,200.00 | ||
| Short-Term Deferred Revenue | 1,200.00 |
When the profit and loss functionality is used, the following journal entries are created:
| Cash | 3,600.00 | ||
| Initial Recognition | 3,600.00 | ||
| Recognition Offset | 3,600.00 | ||
| Long-Term Deferred Revenue | 3,600.00 | ||
| Long-Term Deferred Revenue | 1,200.00 | ||
| Short-Term Deferred Revenue | 1,200.00 |
Short-Term Deferral Method = Rolling Period
For short-term deferral schedules with this method, the short-term deferred revenue account must always be topped up, in this example to 1,200.00, so that the periods will 'roll' forward. The revenue recognition process causes the journal entries to be created. The journal entry is created when each period is recognized.
The periods in this example are:
- February 2016 – January 2017
- March 2016 – February 2017
- April 2016 – March 2017
- And so on…
The following journal entry is created to recognize the revenue. This journal entry is created each time revenue is recognized (monthly in this example):
| Short-Term Deferred Revenue | 100.00 | ||
| Revenue | 100.00 |
The following journal entry is created to roll the period forward and to keep the short-term deferred revenue account topped up:
| Long-Term Deferred Revenue | 100.00 | ||
| Short-Term Deferred Revenue | 100.00 |
Short-Term Deferral Method = Fixed Years
For short-term deferral schedules with this method, the short-term deferred revenue account is reset back to 1,200.00 at the beginning of each fiscal year.
The periods in this example are:
- February 2016 – January 2017
- February 2017 – January 2018
- February 2018 – January 2019
The following journal entry is created to recognize the revenue.
| Short-Term Deferred Revenue | 100.00 | ||
| Revenue | 100.00 |
The following journal entry is created to reset the short-term deferred revenue account. This journal entry is created once at the beginning of each fiscal year. This journal entry is created as the last period in a fiscal year is recognized, and the new fiscal year is coming up (based on the setup).
| Long-Term Deferred Revenue | 1,200.00 | ||
| Short-Term Deferred Revenue | 1,200.00 |
The financial statement at the beginning of 2016 would show the following:
- Short-Term Deferred Revenue 1,200.00
- Long-Term Deferred Revenue 2,400.00
The financial statement at the end of 2016 would show the following:
- Short-Term Deferred Revenue 1,200.00
- Long-Term Deferred Revenue 1,200.00
The financial statement at the end of 2017 would show the following:
- Short-Term Deferred Revenue 1,200.00
- Long-Term Deferred Revenue 0.00
The financial statement at the end of 2018 would show the following:
- Short-Term Deferred Revenue 0.00
- Long-Term Deferred Revenue 0.00
Standard Short-Term Deferral Schedule with a Credit Memo
An invoice for 3,600.00 is posted on Feb. 1, 2016 and is deferred over 3 years with revenue recognized monthly. The fiscal year is 12 months.
The 3,600.00 is split between the short-term and long-term deferred revenue accounts. The following journal entries are created:
| Cash | 3,600.00 | ||
| Long-Term Deferred Revenue | 3,600.00 | ||
| Long-Term Deferred Revenue | 1,200.00 | ||
| Short-Term Deferred Revenue | 1,200.00 |
When the profit and loss functionality is used, the following journal entries are created:
| Cash | 3,600.00 | ||
| Initial Recognition | 3,600.00 | ||
| Recognition Offset | 3,600.00 | ||
| Long-Term Deferred Revenue | 3,600.00 | ||
| Long-Term Deferred Revenue | 1,200.00 | ||
| Short-Term Deferred Revenue | 1,200.00 |
Short-Term Deferral Method = Rolling Period
For short-term deferral schedules with this method, the short-term deferred revenue account must always be topped up, in this example to 1,200.00, so that the periods will 'roll' forward. The revenue recognition process causes the journal entries to be created. The journal entry is created when each period is recognized.
The following journal entries are created each month to recognize the revenue.
February 28:
| Short-Term Deferred Revenue | 100.00 | ||
| Revenue | 100.00 | ||
| Long-Term Deferred Revenue | 100.00 | ||
| Short-Term Deferred Revenue | 100.00 |
March 31:
| Short-Term Deferred Revenue | 100.00 | ||
| Revenue | 100.00 | ||
| Long-Term Deferred Revenue | 100.00 | ||
| Short-Term Deferred Revenue | 100.00 |
April 30:
| Short-Term Deferred Revenue | 100.00 | ||
| Revenue | 100.00 | ||
| Long-Term Deferred Revenue | 100.00 | ||
| Short-Term Deferred Revenue | 100.00 |
After the April 30 revenue recognition, the deferral schedule is as follows:
| Month | Amount | Recognized |
| February | 100.00 | X |
| March | 100.00 | X |
| April | 100.00 | X |
| May | 100.00 | |
| June | 100.00 | |
| ... | ... | ... |
On May 12, a credit memo for 297.00 is applied to this invoice.
| Long-Term Deferred Revenue | 297.00 | ||
| AR | 297.00 |
The credit memo can be applied to the deferral schedule as follows:
Adjust schedule
In this method, the periods that have been recognized are not affected. The credit memo is applied only to unrecognized periods.
February, March, and April have been recognized. The credit memo is applied to the remaining amount, which is 3,003.00.
After the credit memo is applied, only 3,003.00 is left to be recognized. The remaining recognition amount is calculated as follows: 3,003/33 periods left = 91.00.
The recognition schedule is adjusted as follows:
| Month | Amount | Recognized |
| February | 100.00 | X |
| March | 100.00 | X |
| April | 100.00 | X |
| May | 91.00 | |
| June | 91.00 | |
| ... | ... | ... |
The amount recorded to the short-term deferred revenue account must be adjusted for 2016 with the following journal entry being created:
| Short-Term Deferred Revenue | 108.00 | ||
| Long-Term Deferred Revenue | 108.00 |
where the amount is calculated as follows: 1200 - 91 * 12 = 108
May 31 revenue recognition:
| Short-Term Deferred Revenue | 91.00 | ||
| Revenue | 91.00 | ||
| Long-Term Deferred Revenue | 91.00 | ||
| Short-Term Deferred Revenue | 91.00 |
June 30 revenue recognition:
| Short-Term Deferred Revenue | 91.00 | ||
| Revenue | 91.00 | ||
| Long-Term Deferred Revenue | 91.00 | ||
| Short-Term Deferred Revenue | 91.00 |
And so on ...
The financial statement at the beginning of 2016 would show the following:
- Short-Term Deferred Revenue 1,200.00
- Long-Term Deferred Revenue 2,400.00
The financial statement at the end of 2016 would show the following:
- Short-Term Deferred Revenue 1,092.00 (91 x 12)
- Long-Term Deferred Revenue 1,092.00 (91 x 12)
The financial statement at the end of 2017 would show the following:
- Short-Term Deferred Revenue 1,092.00 (91 x 12)
- Long-Term Deferred Revenue 0.00
The financial statement at the end of 2018 would show the following:
- Short-Term Deferred Revenue 0.00
- Long-Term Deferred Revenue 0.00
Short-Term Deferral Method = Fixed Years
For short-term deferral schedules with this method, the short-term deferred revenue account is reset back to 1,200.00 at the beginning of each fiscal year.
The journal entry to reset the short-term deferred revenue account is created once at the beginning of each fiscal year. This journal entry is created as the last period in a fiscal year is recognized, and the new fiscal year is coming up (based on the setup).
The periods in this example are:
- February 2016 – January 2017
- February 2017 – January 2018
- February 2018 – January 2019
The following journal entries are created to recognize the revenue:
February 28 revenue recognition:
| Short-Term Deferred Revenue | 100.00 | ||
| Revenue | 100.00 |
March 31 revenue recognition:
| Short-Term Deferred Revenue | 100.00 | ||
| Revenue | 100.00 |
April 30 revenue recognition:
| Short-Term Deferred Revenue | 100.00 | ||
| Revenue | 100.00 |
After the April 30 revenue recognition, the deferral schedule is as follows:
| Month | Amount | Recognized |
| February | 100.00 | X |
| March | 100.00 | X |
| April | 100.00 | X |
| May | 100.00 | |
| June | 100.00 | |
| ... | ... | ... |
On May 12, a credit memo for 297.00 is applied to this invoice.
| Long-Term Deferred Revenue | 297.00 | ||
| AR | 297.00 |
The credit memo can be applied to the deferral schedule as follows:
Adjust schedule
In this method, the periods that have been recognized are not affected. The credit memo is applied only to unrecognized periods.
February, March, and April have been recognized. The credit memo is applied to the remaining amount, which is 3,003.00.
After the credit memo is applied, only 3,003.00 is left to be recognized. The remaining recognition amount is calculated as follows: 3,003/33 periods left = 91.00.
The recognition schedule is adjusted as follows:
| Month | Amount | Recognized |
| February | 100.00 | X |
| March | 100.00 | X |
| April | 100.00 | X |
| May | 91.00 | |
| June | 91.00 | |
| ... | ... | ... |
The amount recorded to the short-term deferred revenue account must be adjusted for 2016, with the following journal entry being created:
| Short-Term Deferred Revenue | 108.00 | ||
| Long-Term Deferred Revenue | 108.00 |
where the amount is calculated as follows: 1200 - 91 * 12 = 108.00
May 31 revenue recognition:
| Short-Term Deferred Revenue | 91.00 | ||
| Revenue | 91.00 |
June 30 revenue recognition:
| Short-Term Deferred Revenue | 91.00 | ||
| Revenue | 91.00 |
And so on ...
January 31 revenue recognition:
| Short-Term Deferred Revenue | 91.00 | ||
| Revenue | 91.00 | ||
| Long-Term Deferred Revenue | 1,092.00 | ||
| Short-Term Deferred Revenue | 1,092.00 |
where the revenue recognition is calculated as follows 91 * 12 = 1,092.00.
The financial statement at the beginning of 2016 would show the following:
- Short-Term Deferred Revenue 1,200.00
- Long-Term Deferred Revenue 2,400.00
The financial statement at the end of 2016 would show the following:
- Short-Term Deferred Revenue 1,092.00 (91 x 12)
- Long-Term Deferred Revenue 1,092.00 (91 x 12)
The financial statement at the end of 2017 would show the following:
- Short-Term Deferred Revenue 1,092.00 (91 x 12)
- Long-Term Deferred Revenue 0.00
The financial statement at the end of 2018 would show the following:
- Short-Term Deferred Revenue 0.00
- Long-Term Deferred Revenue 0.00
Event-Based Short-Term Deferral Schedule
An invoice for 5,000.00 is posted on Feb. 1, 2016 with an event-based deferral schedule similar to the following. The fiscal year is set up to be 12 months.
| Event | Est. Completion Date | Completion Date | Amount |
| Event 1 | April 30, 2016 | 1,000.00 | |
| Event 2 | September 30, 2016 | 500.00 | |
| Event 3 | April 30, 2017 | 1,500.00 | |
| Event 4 | September 30, 2017 | 500.00 | |
| Event 5 | December 31, 2018 | 1,500.00 |
In this event-based schedule for the year 2016, Event 1 and Event 2 are considered short-term deferrals, while Event 3, Event 4, and Event 5 are considered long-term deferrals. For the year 2017, Event 3 and Event 4 are considered short-term deferrals, while Event 5 is considered a long-term deferral. And so on.
The following journal entry is created for the invoice:
| Cash | 5,000.00 | ||
| Long-Term Deferral Revenue | 5,000.00 | ||
| Long-Term Deferred Revenue | 1,500.00 | ||
| Short-Term Deferral Revenue | 1,500.00 |
Short-Term Deferral Method = Rolling Period
For short-term deferral schedules with this method, the short-term deferred revenue account must always be topped up, so the periods roll forward. (The amount depends on the event schedule)
When Event 1 is completed, on April 30, 2016, and the revenue recognition process is run, the following journal entry is created.
| Short-Term Deferred Revenue | 1,000.00 | ||
| Revenue | 1,000.00 |
| Event | Est. Completion Date | Completion Date | Amount |
| Event 1 | April 30, 2016 | May 12, 2016 | 1,000.00 |
| Event 2 | September 30, 2016 | 500.00 | |
| Event 3 | April 30, 2017 | 1,500.00 | |
| Event 4 | September 30, 2017 | 500.00 | |
| Event 5 | December 31, 2018 | 1,500.00 |
The short-term deferred revenue account must be topped up for the period from May 12, 2016, to May 11, 2017. In this example, an event occurs within this period for 1,500.00. So the amount to top up the short-term revenue account is 1,500.00. The following journal entry is created:
| Long-Term Deferred Revenue | 1,500.00 | ||
| Short-Term Deferred Revenue | 1,500.00 |
Note: If no event occurred between May 12, 2016, to May 11, 2017, the top up amount would be zero.
When Event 2 is completed on September 30, 2016, and the revenue recognition process is run, the following journal entry is created.
| Short-Term Deferred Revenue | 500.00 | ||
| Revenue | 500.00 |
| Event | Est. Completion Date | Completion Date | Amount |
| Event 1 | April 30, 2016 | May 12, 2016 | 1,000.00 |
| Event 2 | September 30, 2016 | October 07, 2016 | 500.00 |
| Event 3 | April 30, 2017 | 1,500.00 | |
| Event 4 | September 30, 2017 | 500.00 | |
| Event 5 | December 31, 2018 | 1,500.00 |
The short-term deferred revenue account must be topped up for the period from October 7, 2016, to October 6, 2017. In this example, an event occurs within this period for 500.00. So the amount to top up the short-term revenue account is 500.00. The following journal entry is created:
| Long-Term Deferred Revenue | 500.00 | ||
| Short-Term Deferred Revenue | 500.00 |
The same pattern occurs for the remaining events.
The financial statement at the beginning of 2016 would show the following:
- Short-Term Deferred Revenue 1,500.00
- Long-Term Deferred Revenue 3,500.00
The financial statement at the end of 2016 would show the following:
- Short-Term Deferred Revenue 1,500.00
- Long-Term Deferred Revenue 3,500.00
The financial statement at the end of 2017 would show the following:
- Short-Term Deferred Revenue 2,000.00
- Long-Term Deferred Revenue 1,500.00
The financial statement at the end of 2018 would show the following:
- Short-Term Deferred Revenue 1,500.00
- Long-Term Deferred Revenue 0.00
Short-Term Deferral Method = Fixed Years
For short-term deferral schedules with this method, the short-term deferred revenue account is reset back to the total of all events to be completed for that fiscal year. The event-based schedule is as follows:
| Event | Est. Completion Date | Completion Date | Amount |
| Event 1 | April 30, 2016 | 1,000.00 | |
| Event 2 | September 30, 2016 | 500.00 | |
| Event 3 | April 30, 2017 | 1,500.00 | |
| Event 4 | September 30, 2017 | 500.00 | |
| Event 5 | December 31, 2018 | 1,500.00 |
When Event 1 is completed, on April 30, 2016, and the revenue recognition process is run, the following journal entry is created.
| Short-Term Deferred Revenue | 1,000.00 | ||
| Revenue | 1,000.00 |
When Event 2 is completed, on September 30, 2016, and the revenue recognition process is run, the following journal entry is created.
| Short-Term Deferred Revenue | 500.00 | ||
| Revenue | 500.00 |
And so on.
Short-Term Deferral Schedule Calculations
The short-term deferral amount per fiscal period is calculated as follows:
Total deferral amount / Total number of fiscal periods
where the Total number of fiscal periods can be calculated by counting the number of 'operating' periods in the matching fiscal year where the short-term deferral start date exists.
Since only Fiscal period (deferral period is the same as fiscal period) is supported, this amount is calculated by ARED.
The short-term deferral start date is February 25, 2018:
| Line | Deferral start date | Deferral end date | Amount | Line | Deferral start date | Deferral end date | Amount | |
| 1 | February 25, 2018 | March 22, 2018 | 3.40 | 10 | November 21, 2018 | December 25, 2018 | 4.96 | |
| 2 | March 21, 2018 | April 17, 2018 | 3.97 | 11 | December 26, 2018 | January 23, 2019 | 4.11 | |
| 3 | April 18, 2018 | May 15, 2018 | 3.97 | 12 | January 24, 2019 | February 20, 2019 | 3.97 | |
| 4 | May 16, 2018 | June 19, 2018 | 4.96 | 13 | February 21, 2019 | March 20, 2019 | 3.97 | |
| 5 | June 20, 2018 | July 17, 2018 | 3.97 | 14 | March 21, 2019 | April 17, 2019 | 3.97 | |
| 6 | July 18, 2018 | August 21, 2018 | 4.96 | 15 | April 18, 2019 | May 15, 2019 | 3.97 | |
| 7 | August 22, 2018 | September 18, 2018 | 3.97 | 16 | May 16, 2019 | June 19, 2019 | 4.96 | |
| 8 | September 19, 2018 | October 16, 2018 | 3.97 | 17 | June 20, 2019 | July 17, 2019 | 3.97 | |
| 9 | October 17, 2018 | November 20, 2018 | 4.96 | 18 | July 18, 2019 | August 21, 2019 | 4.96 |
Short-Term Deferral Method = Rolling Period
With this method, the journal entry is calculated as the sum total of all the periods in the fiscal year.
For this example, the invoice is posted on February 25, 2018. The total number of periods in fiscal year 2018 is 12, so the calculated fiscal year runs from February 21, 2018, to February 20, 2019. So the sum amount of lines 1 to 12 is as follows:
3.4+3.97+3.97+4.96+3.97+4.96+3.97+3.97+4.96+4.96+4.11+3.97 = 51.17
Short-Term Deferral Method = Year End
With this method, the top-up amount of the journal entry is the sum total of the amounts included in the fiscal year as defined in the setup.
For example, the invoice is posted on February 25, 2018. But the fiscal year ends on December 25, 2018. So the sum amount of lines 1 to 10 is as follows:
3.4+3.97+3.97+4.96+3.97+4.96+3.97+3.97+4.96+4.96 = 43.09
Consolidate Prior Periods with Rolling Periods
A deferral schedule starts in January and the Consolidate Prior Periods feature is used. An invoice for the deferral schedule is created in April.
When the invoice is posted, the short-term balance is incorrect because the short term period is from January to December. But the invoice is in April.
However, the consolidation amount is recognized by the end of the same fiscal period as the invoice, which provides a correction for the short-term balance. As a result, the report is correct.
Consolidate Prior Periods with year overlap and Fixed Years
A deferral schedule starts in November 2018 and the Consolidate Prior Periods feature is used. An invoice for the deferral schedule is created in February 2019.
When the invoice is posted, the short-term balance is zero since the calculation is based on the end of 2018. However, the value is incorrect since the invoice is in 2019.
However, the consolidation amount is recognized by the end of the same fiscal period as the invoice, which provides a correction for the short-term balance. As a result, the report is correct.
Invoice Earlier Period than Deferral Start (limitation)
A deferral schedule starts in April. An invoice for the deferral schedule is created in January, which is earlier than the deferral start date.
The short-term balance for January is incorrect since the short-term balance is based on the schedule dates. Also, the short-term balance is based on when the transaction is first posted and when lines are recognized.
April is the start of the short-term period. Also February and March are incorrect for the same reason. Any correction in the short-term balance occurs after April.
Put Deferral Schedule On Hold
A deferral schedule is from February 2, 2018 to January 31, 2019. Amounts for February and March are recognized, and in April the deferral schedule is put on hold. The amount of the deferral schedule is 3,600.00, and the period amount is 100.00.
When a schedule is put on hold, the amount of all unrecognized periods are transferred to a hold account. The journal entries to transfer the unrecognized amounts are as follows:
April 14:
| Long-Term Deferred Revenue | 3,400.00 | ||
| On Hold Revenue | 3,400.00 | ||
| Short-Term Deferred Revenue | 1,000.00 | ||
| Long-Term Deferred Revenue | 1,000.00 |
When a sales order with COGS is deferred, the COGS has its own deferral schedule.
Notes:
- When the hold is removed from the deferral schedule, the journal entries to transfer the amounts back to the short-term and long-term accounts are the opposite of what is shown in this example.
- The full amount of the period is transferred to the hold account.
- If the Transfer Balance to On Hold Account option is not selected, no journal entries to move the amounts to a hold account are created.
For example, when a schedule is put on hold on April 1, the full amount of the period is put on hold. When a schedule is put on hold on April 9, the full amount of the period is put on hold.
Cancel Deferral Schedule
A deferral schedule is from February 1, 2018 to January 31, 2021. Amounts for February and March are recognized, and in April the deferral schedule is canceled. The amount of the deferral schedule is 3,600.00, and the period amount is 100.00.
When you cancel a deferral schedule, you have the following cancellation options:
- Unrecognized amounts
When a schedule is canceled, the amount of all unrecognized periods are transferred to a cancellation account. The journal entries to transfer the unrecognized amounts are as follows:
April 14:
| Long-Term Deferred Revenue | 3,400.00 | ||
| Cancellation | 3,400.00 | ||
| Short-Term Deferred Revenue | 1,000.00 | ||
| Long-Term Deferred Revenue | 1,000.00 |
- Entire Schedule
When a schedule is canceled, the amounts for the recognized periods must be reversed, and then the amount of the entire schedule is moved to a cancellation account. Any short-term adjustments are transferred from the short-term deferral account to the deferral account.
The journal entries to transfer the unrecognized amounts are as follows:
April 14:
| Long-Term Deferred Revenue | 3,400.00 | ||
| Cancellation | 3,400.00 | ||
| Short-Term Deferred Revenue | 1,000.00 | ||
| Long-Term Deferred Revenue | 1,000.00 |
The journal entries have separate vouchers, but are posted in the same batch.
Reclassify Deferral Schedule
A deferral schedule is from February 1, 2018 to January 31, 2021. Amounts for February and March are recognized, and on April 14 the deferral schedule is reclassified. The amount of the deferral schedule is 3,600.00, and the period amount is 100.00.
Both the short-term and long-term accounts for the deferral schedule can be reclassified.
When a schedule is reclassified, the amounts that have been recognized must be transferred to new accounts. Also all unrecognized amounts must be transferred to the same new accounts. The journal entries to transfer the amounts are as follows:
April 14:
| Old Short-Term Deferred Revenue | 1,000.00 | |
| New Short-Term Deferred Revenue | 1,000.00 | |
| Old Long-Term Deferred Revenue | 2,400.00 | |
| Long-Term Deferred Revenue | 2,400.00 |
Note: The full amount of a period is always transferred to the new account. For example, when a deferral schedule is reclassified on April 1, the full amount of the period is transferred to the new account. When a schedule is reclassified on April 9, the full amount of the period is transferred to the new account as well.