Deferred Inventory: Sales Example

This example demonstrates an invoice with deferred inventory items that are created in Advanced Recurring Contract Billing (ARCB).

Three inventory items, Item A, Item B, and Item C are sold to a customer. The price of the items are 120.00 each. Item A is delivered immediately, and Item B and Item C are to be delivered in three months, after the customer is ready to install them.

The revenue for Item A is immediately recognized. The revenue for Item B and Item C is deferred and will be recognized in three months.

The unit cost for the items are as follows: 

  • Item A is 100.00
  • Item B is 95.00
  • Item C is 10.00

The journal entries are as follows: 

AR   360.00  
       Revenue, A   120.00
       Deferred Revenue, B   120.00
       Deferred Revenue, C   120.00
Cost of Goods Sold, Item A   100.00  
Deferred Costs of Goods Sold   205.00  
      Inventory   305.00

ARED creates the following four schedules: 

  • Deferred Revenue, Item B = 120.00
  • Deferred Revenue, Item C = 120.00
  • Deferred COGS, Item B = 95.00
  • Deferred COGS, Item C = 110.00

Note icon. Note: If Item B and Item C use the same inventory and COGS accounts, both items are consolidated into a single journal entry. ARED creates separate COGS schedules for both items.