Is there a way to handle deferred revenue and deferred expense using Dynamics NAV without using any customization?
Before answering to the question, First of all let’s look at what are the definitions of deferred revenue and deferred expenses:
DEFINITION of ‘Deferred Revenue’
Advance payments or unearned revenue, recorded on the recipient’s balance sheet as a liability, until the services have been rendered or products have been delivered. Deferred revenue is a liability because it refers to revenue that has not yet been earned, but represents products or services that are owed to the customer. As the product or service is delivered over time, it is recognized as revenue on the income statement.
DEFINITION of ‘Deferred Expense’
A deferred expense is a cost that has already been incurred, but which has not yet been consumed. The cost is recorded as an asset until such time as the underlying goods or services are consumed; at that point, the cost is charged to expense. A deferred expense is reported on the balance sheet as an asset until it expires. As it is expiring, it will be moving from the balance sheet to the income statement where it will be reported as an expense. The entries involving deferred expenses are called adjusting entries.
Is there a default straightforward way to do handle this in Dynamics NAV? If this question was asked few weeks back my answer would have been NO. However with the latest version of Dynamics NAV 2016 this can be achieved using a separate module available.
This blog post is not about 2016 version and it is about the previous versions and how you can handle the deferred revenue and expenses using a workaround.
Last week me and few of my colleagues had a small discussion about this because we recently got a requirement on
“How to recognize revenue at the time of cash receipt”.
What we thought was use below setup:
At the time of invoicing:
Dr – Customer Control Account via Customer Posting Group
Cr – Deferred Revenue Account
At the time of Cash Receipt:
Dr – Bank Account via Bank Account Posting Group
Cr – Customer Control Account via Customer posting Group
About the manual entry you can do a small modification where system post the adjustment entries at the time of applying the payment to invoice. This will be a minor modification and you can do it with a help of a NAV developer.
This is just a workaround and if you have any other suggestions please be kind enough to post them as comments.
Please provide your feedback with a comment.
Thank you and Regards,