Unearned Revenue


Our business services & bills customers monthly. We occasionally invoice annually in advance. How do I record the unearned revenue as the services will be delivered over the next 12 months? If I record the invoice as paid on the payment date, it will throw the figures out of balance. I will have a lump sum income for the first month, then unmatched expenses over the next 12 months. I would like to keep invoicing the customer each month and allocating the payment to customer credits, BUT what do I do about the invoice I issued the customer that needs to be paid? Can this be done?


This isn’t a question so much about Manager software, but rather about general accounting practices.

How these invoices and payments are treated depends on the terms of your contractual arrangement with your customers. If the payment is a fixed fee for one year of service, regardless of what those services might entail or add up to, the revenue should be recognized under accrual accounting when invoiced. The customer has purchased a year of service. Your records will not be out of balance, but will reflect your true position. And yes, expenses will accrue over the coming year that reduce profit applicable to that customer. Expenses and income do not have to be matched.

If the service is really monthly, or for case-by-case events, it is more appropriate to bill as you go along.

If you prefer to ask for a year’s payment in advance, you can apply the payment to customer credits as you say. When you issue a monthly invoice to that customer, it will automatically show as paid in full until the advance payment is eliminated. You can print an information copy to send to the customer, which will carry the Paid in Full stamp.