Finance Unearned / Deferred Revenue

Unearned / Deferred Revenue is when payments are received before the invoice issued date.  An example of unearned / deferred revenue is collecting deposits for re-enrollment contracts for the next fiscal year.  Note: The general ledger account must have a Type of “Unearned Revenue” or “Deferred Revenue”.

There are two approaches to consider for recording unearned / deferred revenue in PCR Educator.
1. Recording the unearned / deferred revenue on the invoice line items:  Using this approach, a manual journal entry must be made in order to move the amounts from unearned / deferred revenue (liability) to revenue (income).  Note:  Use this approach when the revenue must be recognized in a prorated manner over the course of the year.
2. Recording the unearned / deferred revenue on the association from the receipt to the invoice.  Using this approach, the invoice must be dated for when the revenue is earned and the invoice line items are for the revenue accounts.  Note: Use this approach when all revenue is recognized at once.  While you can use the first approach in this case too, this approach avoids the need for a manual journal entry.  Note:  Specify the unearned / deferred revenue account on the Payment Configuration so that it is automatically applied when payments are received online.  Note: When manually recording receipts, specify the “Default Unearned” account on the deposit details.

What automatically happens when using the second approach:
Revenue is already recognized in the next fiscal year since the invoice is dated and posted in the next fiscal year.  Cash is received for the date of the payment.  There are two adjustments the system makes when Finalizing the deposit for the payment:
1. Accounts Receivable is underreported on the date the payment is received until the invoice date.  So on the date of the payment, AR is debited and Unearned / Deferred is credits.
2. On the date the invoice is issued, AR is credited and Unearned / Deferred is debited reversing the transactions added for the payment date.

A contract is completed February 1st with a $10,000 tuition invoice dated for July 1st.  There is an initial deposit of $1000.

Contract Submitted February - the contract is post dated to the start of the next fiscal year.
Cash AR Unearned Revenue

Total   10000    10000 
Deposit Paid - the unearned logic is not applied yet.
Cash AR Unearned Revenue
2/1 1000 (1000)

Total 1000  9000    10000

Deposit Finalized - the unearned logic is applied.
Cash AR Unearned Revenue
2/1 1000 0 1000
10000 0 10000
Total 1000  10000  1000  10000 

See also
Payment Configuration    Action    Course    DAT   
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