Deferred Revenue Report Missing

1

Hello,

I am a Chartered Accountant in Canada. It appears there is no report to show deferred revenue. This is where a customer made a deposit payment, but no corresponding invoice was issued yet.

I see 2 issues with how Manager is currently handling accounts receivable and deferred revenue:

  1. Aged accounts receivable report total does not match the accounts receivable balance on the Trial Balance report if there exists a customer who made a deposit payment, but no corresponding invoice was issued yet (i.e. deferred revenue exists).

  2. There is no report to show deferred revenue details (i.e. customer deposits for which there is no invoice issued yet).

As a professional accountant, I would like to see one of the following two possible corrections to be implemented:

  1. Include deferred revenue in aged accounts receivable report as negative values. Most other accounting software will do this, but as a professional accountant I will say that is not the right way to do it (see point #2 below for correct way)

  2. Accounts receivable and deferred revenue are two different and distinct concepts in accounting. Accounts receivable is an asset and deferred revenue is a liability. It is not appropriate to net these two items together. The correct way of handling this is to have a trial balance account classified as a liability that tracks deferred revenue. Just like there is an account that tracks accounts receivable (for which you can for example creating an aging report), there should be a liability account that tracks deferred revenue, and be able to create a similar aging report, but only for deferred revenue.

Thanks

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Your comments regarding the mismatch between the Aged Accounts Receivables report and the Accounts Receivable account balance have been loudly protested previously, but yet to be rectified.

Apparently, some justify this distortion by claiming that a credit balance is not a receivable.
To almost everybody else, the report is an auditable reconciliation of the balance sheet account.

A customer’s credit balance doesn’t have to imply deferred revenue, it could just be a result of an issued credit note for returned inventory.

Yes, and Manager caters for that in various ways, read this Guide
Record Customer Deposits and Advances - Manager Guides

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Thanks for your response. I am new to Manager and the forum, so forgive that I don’t have the full history of development.

Apparently, some justify this distortion by claiming that a credit balance is not a receivable.

I agree that a credit balance is not a receivable, but there should never be a distortion between an account and its sub-ledger! In the context of a financial statement audit, if a sub-ledger does not match the TB account balance, then it’s worthless and accountants don’t look at it.

A customer’s credit balance doesn’t have to imply deferred revenue, it could just be a result of an issued credit note for returned inventory.

Customarily, a credit to a customer, irrespective of how it arose, is called deferred revenue. It is a liability that must be settled by either a refund or providing goods/services. Similarly, a credit with a supplier is customarily called an Accounts Payable. Both are a liability however, and it doesn’t matter how they arouse.

Yes, and Manager caters for that in various ways, read this Guide
Record Customer Deposits and Advances - Manager Guides

This guide is on a different subject. It discusses payments made to suppliers rather than payments received from customers. This guide discusses what we call Prepaid Expenses (but terminology may vary around the world).

Bottom line is that I still believe that 2 things need to be fixed in Manager:

  1. Customer deposits (credits) must be tracked in an account called “Deferred Revenue” and not in Accounts Receivable.

  2. A report must be available for the Deferred Revenue account that will provide the same details as an AR aging report for receivables.

Let me also tell you from experience, most bookkeeping software will track customer deposits as a negative value in the Accounts Receivable sub-ledger (i.e. just like normal accounts receivable, but with a negative value). Most accountants will accept such a report and if the deferred revenue component is immaterial (i.e. too small to care about), then it will be ignored, and the sum of deferred revenue and accounts receivable will simply be grouped together and called accounts receivable. If the deferred revenue component is material (i.e. significant enough to care about), then it will be manually extracted from the report, perhaps with the help of a spreadsheet application, and reported as deferred revenue on the financial statements - because it’s not a receivable.

In my view, the best bookkeeping software is one that can align itself with financial statement preparation and audit procedures. This means sub-ledgers for all major financial statement line items exist and they match to the trial balance.

Any thoughts on whether my recommendations will be seriously considered for implementation?

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Sorry, connected to the wrong Guide Manager Cloud
Anyhow, Suppliers or Customers - they are just the reverse of each other.

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There is also nothing to stop you from setting up your chart of accounts exactly as you describe, using Special Accounts. There is a Guide about that, too.

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Sure that’s a reasonable workaround, but I am still hoping the developer(s) will implement a solid solution as I described. I honestly think my recommendations are very valid and will make the software better! All I want is to help you and as a result have better software for myself!