We have a client that needs to recognize 'deferred contract revenue'. The situation is as follows: they get contracts signed for what they sell; delivery of their product happens about six months later. Since they are legally obligated to fulfill the contract, their CPA wants to recognize 'deferred contract revenue' as a liability when the contract is signed (and a deposit is taken); the actual revenue is to be recognized at the time of product delivery or sale.
Until now, what they are doing to handle this:
- write a Sales Order at the time of the contract, using a specific item to track this signed contract
- at the end of each month, run an Open Sales Order by Item report to get the total $$ open for this particular contract item
- make a journal entry adjustment for this amount to manaully record the deferred revenue
- the journal entry is then reversed at the beginning of the subsequent month to remove deferred revenue and leave it ready for the next month end
In essence, this is just "for show", or for financial statement purposes, that's all. So it's working now. However, it's not an automated way and I want to make it automated, to avoid the reversing journal entry--that's a manual process, something I like to avoid.
Any input on this is greatly appreciated. Thank you in advance.