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  1. #1
    Join Date
    Jan 2005
    Location
    USA
    Posts
    1,379

    Handling Annual Payments

    Hello,

    We use QuickBooks for our bookkeeping.

    We don't get all that many customers paying annually as opposed to monthly, but when we do, it's difficult to know how to handle them.

    What I mean is, we pay all of our venders monthly, so we know what the budget is from month to month. But when we get a yearly customer, it throws all of that off.

    I would like to see how others handle this. I'd love to show that income split over the entire 12 months, or somehow otherwise account for it gradually. Suggestions would be appreciated.

  2. #2
    What you are referring to is the difference between cash accounting and GAAP accounting where revenue recognition needs to occur as the income is earned, not when you are paid.

    I've seen a couple of ways to handle this if you truly want to see it in reports. You'll want to have a separate account called "Unearned Revenue". This is where you'll book the entry where you earn the sales. i.e. debit Unearned Revenue, Credit Sales. You will then on a monthly basis earn that revenue. So you would Debit Revenue, Credit Unearned Revenue until the bal of Unearned Revenue is $0.

    This really is more work than you want it to be since Taxes are paid on a cash basis (assuming you are in the US), so may be more work than it is worth.

  3. #3
    Join Date
    Jan 2005
    Location
    USA
    Posts
    1,379
    Quote Originally Posted by veslicenet View Post
    What you are referring to is the difference between cash accounting and GAAP accounting where revenue recognition needs to occur as the income is earned, not when you are paid.

    I've seen a couple of ways to handle this if you truly want to see it in reports. You'll want to have a separate account called "Unearned Revenue". This is where you'll book the entry where you earn the sales. i.e. debit Unearned Revenue, Credit Sales. You will then on a monthly basis earn that revenue. So you would Debit Revenue, Credit Unearned Revenue until the bal of Unearned Revenue is $0.

    This really is more work than you want it to be since Taxes are paid on a cash basis (assuming you are in the US), so may be more work than it is worth.
    Thanks. We use the accrual basis of accounting already; I just wasn't sure how to cover this particular case.

  4. #4
    Join Date
    Jul 2008
    Location
    Seminole, Oklahoma
    Posts
    1,665
    What I do with my company is take all estimated Annual revenue and divide that by 12, then build a budget with some head room.

    I ran into the same thing when most of my customers started paying annually.

  5. #5
    Join Date
    Oct 2007
    Location
    Milwaukee, WI
    Posts
    143
    Quote Originally Posted by veslicenet View Post
    What you are referring to is the difference between cash accounting and GAAP accounting where revenue recognition needs to occur as the income is earned, not when you are paid.

    I've seen a couple of ways to handle this if you truly want to see it in reports. You'll want to have a separate account called "Unearned Revenue". This is where you'll book the entry where you earn the sales. i.e. debit Unearned Revenue, Credit Sales. You will then on a monthly basis earn that revenue. So you would Debit Revenue, Credit Unearned Revenue until the bal of Unearned Revenue is $0.

    This really is more work than you want it to be since Taxes are paid on a cash basis (assuming you are in the US), so may be more work than it is worth.

    Perfect explanation. Many hosting companies do not understand this concept and the earned/unearned revenue concept is accounting while paying your bills is simply budgeting and cash flow concerned.

    Many billing systems in the hosting industry like WHMCS and others do not understand earned/unearned revenue.

    I would consult with an accountant.

  6. #6
    Join Date
    Apr 2012
    Location
    India
    Posts
    170
    If you still need help then let me know.
    I have worked with quickbooks for good 4 years. I know this piece in and out and can help you with other things as well.

    Let me know if you need any help
    CFG Web Hosting Company, Haryana, India
    Premium CDN Based cPanel Hosting & Dedicated Servers
    Follow Twitter:@cfghosting - www.cfg.co.in - +91.8988113379

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