Generally, expenses or revenues can be deferred in order to comply with the principles of the accrual accounting. An example of a deferred expense can be the $12,000 rent billed in advance with an invoice received and registered by a company on June 30 for the office to be rented from July 1 through December 30. Initially, the $12,000 is deferred to a balance sheet asset account, for instance Rent Deferred Expenses. For deferred expenses like rent and insurance, service contracts and warranties, the company should create a number of monthly transactions to recognize expenses that incurred each month within the period for which the rent or insurance was paid. In the above example, the company will recognize $2000 as rent expenses each month from July through December.
FirstBIT ERP provides the functionality of processing of expense and revenue deferrals. The functionality of deferred expenses becomes available once you select the Enable Deferred Expenses option on the Administration > Settings > General Settings form. With this functionality turned on, you will be able to create deferred expenses, specify their parameters, and process them according to their parameters. Similarly, you can turn on the functionality of deferred revenues on the Administration > Settings > General Settings form and be able to correctly account for any services that are billed to the customers and will be rendered during multiple periods.
Deferred Expenses Workflow
Deferred expenses can be created for such billed services directly from the invoices received from suppliers—you can click the Create / Cancel Deferral button on the Services tab to open the Deferred Expenses dialog box where you can enter the deferral parameters.
Generally, deferred expenses are processed at the month end. For any deferred expenses with the Manual calculation method, you can create an Expense Recognition document and include those deferred expenses for which the specific amounts should be recognized as actual expenses in the current month.
Deferred expenses with the By Month and By Calendar Days calculation methods can be processed automatically or manually.
To set up automatic processing, select the Calculate Current Expenses for Deferrals option on the Accounting > Service Tools > Month-End Closing form, then the Month-End Closing procedure will generate an Expense Recognition document that includes any deferred expenses with these (By Month and By Calendar Days) calculation methods. The generated document lists the deferred expenses for which the specific amounts calculated by these methods should be recognized as actual expenses in the current month; the document is posted automatically. If needed, you can remove some of the deferred expenses from the automatically generated document to a manually created one and manually enter the amounts for recognition in the current month (for more details, see Expense Recognitions).
If you need to change the deferral parameters for any deferred expenses, you can create a document of the Deferred Expense Adjustment type. You can change the following parameters of deferrals: deferral end date, calculation method, GL accounts associated with the deferral, and parameters for expense analytics.
For reports that provide complete information on deferred expenses currently available in the system, refer to Reports on Deferred Expenses and Revenues.
Deferred Revenues Workflow
Deferred revenues (DRs) can be created for sold services directly from the invoices—you can click the Create / Cancel Deferral button on the Inventory and Services tab to open the Deferred Revenue dialog box where you can enter the deferral parameters.
Generally, deferred revenues are processed at the month end. For any deferred revenues with the Manual calculation method, you can create a Revenue Recognition document and include those deferred revenues for which the specific amounts should be recognized as actual revenues in the current month.
Deferred revenues with the By Month and By Calendar Days calculation methods can be processed automatically or manually.
To set up automatic processing, select the Calculate Current Expenses for Deferrals option on the Accounting > Service Tools > Month-End Closing form, then the Month-End Closing procedure will generate a Revenue Recognition document that includes any deferred revenues with these (By Month and By Calendar Days) calculation methods. The generated document lists the deferred revenues for which the specific amounts calculated by these methods should be recognized as actual revenues in the current month; the document is posted automatically. If needed, you can remove some of the deferred revenues from the automatically generated document to a manually created one and manually enter the amounts for recognition in the current month (for more details, see Revenue Recognitions).
If you need to change the deferral parameters for any deferred revenues, you can create a document of the Deferred Revenue Adjustment. You can change the following parameters of deferrals: deferral end date, calculation method, GL accounts associated with the deferral, and parameters for income analytics.
For reports that provide complete information on deferred revenues currently available in the system, refer to Reports on Deferred Expenses and Revenues.