Deferred Revenue on Ongoing/Monthly Memberships

[Nancy]

We’ve been using Fixed/Upfront duration & billing and when the customer pays up front, the money goes into our deferred account. We have two recurring events. When we do each one, half the upfront payment is recognized, and this is reflected on the invoices for the recurring event job with -/+ deferred/realized invoice items. All good.

But... we would like our customers to have the option to pay for their year-long contracts monthly, and have them auto-renew when the year is up. Our CSM suggested we add an Ongoing/Monthly Duration & Billing option with Continuous Recurring Service Type. She explained that the monthly payments would go into deferred and half would come out when we perform each of our two recurring yearly service events. However, in situations where the customers are, for instance, only two months into their contract and we perform the first of the two the recurring events, does half come out of deferred even though they’ve only paid 1/6th of their contract? I'm no accountant, but that doesn't sound right. Can anyone confirm that's how it works?

[dorobcp]

This is indeed how it works. Because then the next four months would basically catch them up and then, when they get their second visit, it would be paid for similarly, depending on the time of year that they had their visit. The thinking is with deferred revenue, that it is not exact to the penny for every single account, but that your balance in QuickBooks for deferred revenue overall would be accurate. Just some food for thought, accounting- wise, a lot of shops will not defer the revenue for monthly paying memberships, and set up a different membership type where the sales item goes to an income account.

[LBabayan]

Hi @Nancy, 

Thanks for your posting, great question!  From my understanding, the calculation should be accurate even if the customer is only two months into their contract. But let's see if one of our Membership experts @dorobcp can confirm this and provide more insight.