Revenue / Expense Deferral

The Revenue / Expense Deferral module in Dynamics GP is one of three options we regularly use to assist our clients in managing their deferred revenue. The other two are Project Accounting and Contract Administration.

The deferral module is the easiest to use, is quite flexible, and provides a solid report option that ties out to the balance sheet account(s) you use to hold deferred amounts.

The deferral module allows you to defer amounts from a specific GL distribution. The GL distribution can be from the GL, RM, PM,SOP, Invoicing, or POP module. Essentially what the module does, is automatically create GL entries into the future, to match the deferral schedule.

The deferral schedule can be created from scratch each time you need to create one, or you can use a Deferral Profile that can specify, the length of deferral, GL accounts used, start date, etc.

Below is the result of a deferral profile being "allocated" to a GL distribution for a $50,000 software sale. The sale is being deferred evenly out, over three years.

In this case, when the invoice is posted, the credit amount for the sale will go to a balance sheet account, '2115', instead of a sales account. At posting, the deferral module will create 36 GL transactions spanning the next 36 months, that will debit the "Deferral Account", and credit the "Revenue Recognition" account.

This is what the GL distribution entry looks like. In this case, the deferral profile is setup to match the "SALES" transaction type, and the GL account, "000-2115-00".

This is the control report that should match the deferral account(s) you have set up. What's nice about this report is that you can run it for any date, and it should match the GL amounts for that date. To match to the deferral module report, you would want to make sure that the only transactions in the account(s) were those generated by the deferral module.

The Revenue / Expense Deferral module can be used to control various deferral situations. If you're not using it, and have some deferred revenue or expense accounting issues, you will want to check it out.

Project Accounting - Deferred Revenue

The Project Accouting module in Dynamics GP can be used to accurately manage deferred revenue. Many of our clients use this function when their business involves a mix of project related activity and subscription based or contract based revenue.


To use Project Accounting for manageing deferred revenue there are a couple of rules:

• Use a "Service" Fee Type


• Use a "Time and Materials" Project Type

Project Accounting will allocate the fee amount evenly over the duration represented by the start date and end date of the project, or as identified in the Fee Entry screen.


This is an example of a Fee for which the revenue will be deferred over 12 months:




These three accounts will handle all accounting for the invoicing and revenue recognition of the fee:

Here's an example of the fee in a project:

To invoice the fee, you just use the standard invoicing process in Project Accounting. To recognize revenue you use the standard revenue recognition process. You can use Cycle Revenue Recognition or create the transaction manually by navigating to: Transactions >> Project >> Billing >> Revenue Recognition.

But what happens with a service fee that spans a period of time, is that revenue will be recognized for the fee amount, from the start date, up to the Cutoff date specified. This will then effectively defer the revenue associated with the fee, from the last time the revenue recognition process was run for the fee, and the current Cutoff date.

Here's an example of the Revenue Recognition Entry screen:

This is the detail of the results of the revenue recognition calculation:

In my example, the revenue was recognized from 4/12/2017, to 5/31/2017: (50-1) days / (365-1) days = 13.46% x $10,000 = $1,346.00.

Why one day is taken off the numerator and denominator is something known only to the developer.

Here are the examples from KB# 885070:

A service fee can be set up for any time period that you specify. The percent complete is based on the total number of days for the service fee. The Begin Date field and the End Date field are used to calculate the number of days for the service fee.

Then, the percent complete is multiplied by the fee amount to obtain the revenue recognition amount. Billing has no affect on the amount that is recognized. The following examples show how the revenue recognition amount is calculated:

Service fee example 1

Fee Amount: $10,000

Begin Date: 1/1/2007

End Date: 4/30/2007

Total Number of Days = 121 days (31 + 29 + 31 + 30)

If revenue recognition is run with a cutoff date of 2/15/2007, the percent complete is calculated as follows:

Percent Complete = ((31 + 15) - 1) / (121 - 1) = 0.375 = 37.50%

Amount Recognized = 37.50% * $10,000 = $3750

Service fee example 2

Fee Amount: $1000

Begin Date: 1/1/2006

End Date: 2/29/2007

Total Number of Days = 425 days (365 + 31 + 29)

If revenue recognition is run with a cutoff date of 2/15/2007, the percent complete is calculated as follows:

Percent Complete = ((365 + 31 + 15) - 1) / (425 - 1) = 0.9669811 = 96.70%

Amount Recognized = 96.70% * $1000 = $967


If you have a deferred revenue tracking issue related to project-type business activities, consider using Project Accounting to manage the whole process.

Contract Administration - Revenue Recognition

Contract Administration is included in the Dynamics GP, BRL - Advanced Management license. We have clients that are using it a lot to manage revenue recognition for parts of their businesses. The key functionality that makes it good for certain revenue recognition applications is that if you invoice your customers less than monthly, the module has a built-in deferred revenue recognition process that will create and post monthly revenue recognition entries.

It's relatively easy to use.


You create a new contract by navigating to: Transactions >> Contract Administration >> Contract Entry/Update.


In this example, I am invoicing annually.





Click on the "Contract Lines" button and this screen pops up. In this screen you can either select items from the item master file, or just key in an item. The pricing can be set up to default from a separate price book if you wish, or you can merely key in the amount you want to charge.

Click on the "Invoices" button and you get a list of all the invoices that are planned to be created according to the schedule you've set up. In this case there is only one, because this is a one year contract, invoiced on an annual basis. This screen will just show the amount to be invoiced for the selected line item in the schedule above.

In this screen you see the revenue recognition transactions; posted, and planned. The top window shows all the revenue recognition transactions that are scheduled to be posted. The bottom window shows the transactions that have been posted.

To invoice the contract, navigate to: Transactions >> Contract Administration >> Contract Billing.

To generate and post the revenue recognition transactions, navigate to: Transactions >> Contract Administration >> Revenue Recognition

One of the advantages of this module for revenue recognition is that the schedule of planned and posted revenue transaction are contained in SQL tables; as opposed to Project Accounting that calculates and creates the transactions as you request them. This makes reporting on future revenue easier.

Generally we recommend one or more of three modules in Dynamics GP to manage revenue recognition: Contract Administration, Project Accounting, and Revenue / Expense Deferral.

Each has its strong points. It depends on the business process you want to control, as to which module you choose.