QBO Advanced Revenue Recognition Enhancements

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Generally Accepted Accounting Principles (GAAP) requires revenue recognition according to the ASC 606 standard which specifies how and when revenue must be recognized. 

Previously Insightful Accountant reported about the addition of a revenue recognition feature that became part of QuickBooks Online Advanced. The feature allows QBO Advanced business users to properly recognize revenue when it’s earned.

Recently, QBO Advanced has enhanced its revenue recognition functionality to meet even more sophisticated needs of users with respect to how the automatic calculations for revenue recognition are computed, simplification of editing and deleting of transactions associated with revenue recognition rules, and the ability to adjust revenue recognition related pricing and dates.

Increased flexibility

QuickBooks automatically calculates a revenue recognition schedule, but to suit different scenarios, QBO Advanced users can edit a schedule after saving an invoice. While this functionality can help many kinds of clients, project-based customers will benefit the most.

Examples of revenue recognition scenarios:

  • A software-as-a-service (SAAS) provider charges an annual up-front subscription covering the full 12-months but can only recognize 1/12th of the total subscription price per month over the course of the year.
  • A law firm receives a client retainer at the commencement of services but can only recognize portions of the retainer as fees are earned based on the services to be rendered.
  • A Homeowners Association receives annual dues on January 1 of each year from their HOA members but can only recognize 1/12th of the total annual dues for each month, January through December.
  • A project-based contractor charges their customers at the start of a project but must only recognize portions of that revenue when the corresponding portions of the project are completed.

Simplified editing and deleting

Clients can now add products or delete product line items on an invoice or sales receipt, or void an invoice or sales receipt for any reason after the fact.

Users should be aware of how Service Interval and Duration, Revenue Recognition Frequency, and Posting Frequency all impact how revenue recognition is computed within QuickBooks Online Accountant.

  • Service Interval and Duration define how a company sells their product/service. For example: An annual subscription sold at US $ 1200 can be set up as 12 months or 52 weeks.
  • Revenue Recognition Frequency is how often you recognize revenue for a product or service. It’s automatically set to monthly, but you can change it at any time. Once updated, it applies to all the future transactions. For example, an annual subscription sold at US $ 1200 with a daily frequency will be prorated based on the number of days in a month.
  • Posting Frequency is when we post the recognized amounts to the books. We post all automatic revenue recognition entries at the end of the month.

To edit a service item’s duration at the transaction level:

  1. Go to Sales, then Invoices. 
  2. Open an existing invoice that has the service item, or select Create invoice.
  3. Fill out your invoice, including the Product/Service and date the service starts under Service date. The service date can be after the businesses' close books date.
  4. When you’re done filling out your invoice, select Save.
  5. Under Revenue recognition (hidden), select Manage.
  6. In the Revenue Recognition panel, select Edit.
  7. In the Service Duration field, enter a new period for your schedule. The duration of the service must be greater than the duration of posted entries, less than 5 years. (You can only edit posted entries that occur after the businesses' close books date.)
  8. Review or revise your automatically-updated schedule, then select Apply.

Adjustable pricing and dates

QBO Advanced users can now adjust the price of a revenue recognition item. Before the schedule begins they can also revise the service date of a line item.

To edit a service item’s price at the transaction level:

  1. Go to Sales, then Invoices.
  2. Open an existing invoice that has the service item or select Create invoice.
  3. Fill out your invoice, including the name of service under Product/Service and the date the service starts under Service date. The service date can be after the businesses' close books date.
  4. Under Rate, enter a new price.
  5. When you’re done filling out your invoice, select Save. 
  6. Under Revenue recognition (hidden), select Manage. 
  7. In the Revenue Recognition panel, select Edit to review your changes.
  8. Select Apply.

Be aware when editing a service Item’s price at the transaction level that:

  • A new price higher than the original price automatically increases recognition amounts for future open months.
  • A new price lower than the original price, but still higher than the total amount recognized until now, reduces recognition amounts for future open months.
  • A new price lower than the total amount recognized until now, automatically shows a negative recognition amount in the current month. (To remove negative recognition amounts, manually adjust the amounts from the Revenue Recognition panel.)

As a result of the Revenue Recognition feature, and the enhancements to it, QBO Advanced users need not rely on third-party apps or complex spreadsheets to track recurring revenue or manually post unearned revenues from a liability account to an asset account.

Footnotes & Disclosures:

Some feature content and graphic materials may have been adapted from Intuit media source or other reference content including QBO Advanced Help references. All adapted source content and materials are furnished solely for educational purposes by Insightful Accountant.

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