JE-15 Jan 2026Manualposted
Invoice the contract.
| Account | Dimensions | Debit | Credit |
|---|---|---|---|
| 1100 Accounts receivable | 60,000 US Dollar | ||
| 2400 Deferred revenue | 60,000 US Dollar | ||
| Totals | 60,000 US Dollar | 60,000 US Dollar | |
Balanced.
Journal entry for a bundled contract under ASC 606
For a contract with several promises, debit Accounts receivable and credit Deferred revenue for the price when billed, allocate the price to each performance obligation by relative standalone selling price, and credit Revenue for each part as that promise is satisfied.
- Contract price
- $60,000
- Standalone total
- $75,000
- Bundle discount
- $15,000
- Entity
- Illustrative company
- Basis
- Accrual
- Currency
- USD
- Period
- January – February 2026
The worked example
A customer buys a license, implementation and a year of support for $60,000. Sold separately they would cost $40,000, $15,000 and $20,000 — $75,000 in all — so the $15,000 discount is shared across all three: $32,000 to the license, $12,000 to implementation and $16,000 to support, earned at $1,333.33 a month.
Transaction · January 5, 2026
Adjusting entry · January 31, 2026
JE-231 Jan 2026Adjustingposted
License delivered and implementation completed in January.
Journal entry JE-2, 2 lines Account Dimensions Debit Credit 2400 Deferred revenue 44,000 US Dollar 4000 Revenue 44,000 US Dollar Totals 44,000 US Dollar 44,000 US Dollar Balanced.
Adjusting entry · February 28, 2026
JE-328 Feb 2026Adjustingposted
Recognize the first month of support.
Journal entry JE-3, 2 lines Account Dimensions Debit Credit 2400 Deferred revenue 1,333 US Dollar and 33 cents 4000 Revenue 1,333 US Dollar and 33 cents Totals 1,333 US Dollar and 33 cents 1,333 US Dollar and 33 cents Balanced.
Allocating the transaction price by standalone selling price
Computed by the same tested function the toolbelt runs. The last period absorbs any rounding, so the schedule sums to the cent.
| Promise | Standalone price | Allocated price |
|---|---|---|
| License | 40,000.00 | 32,000.00 |
| Implementation | 15,000.00 | 12,000.00 |
| Support, 12 months | 20,000.00 | 16,000.00 |
What the entries do to the accounts
Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.
| Account | Debit | Credit |
|---|---|---|
| 1100 Accounts receivable | 60,000 US Dollar | |
| 2400 Deferred revenue | 14,666 US Dollar and 67 cents | |
| 4000 Revenue | 45,333 US Dollar and 33 cents | |
| Totals | 60,000 US Dollar | 60,000 US Dollar |
Why it is booked this way
ASC 606 recognizes revenue promise by promise. A contract that sells a license, an implementation and a year of support for one price has three performance obligations, and each earns its share of the price when it is delivered.
The share is set by standalone selling prices, not by how the invoice happens to be laid out. When the bundle is cheaper than the parts, the discount is shared out in the same proportions.
Common mistakes
- Recognizing the whole contract when the license is delivered.
- Taking the bundle discount against the support line only, which pushes revenue earlier than ASC 606 allows.
- Allocating by list price on the invoice rather than by standalone selling price.
Questions
- How is the transaction price allocated?
- In proportion to each promise's standalone selling price — what the company charges for it sold alone. A bundle discount is therefore spread across every promise rather than taken against one.
- When is each part recognized?
- When control passes. A software license is typically satisfied at a point in time, when the customer can use it; a year of support is satisfied over the year; implementation services over the weeks they are performed.
Terms on this page
Work with this entry
The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.
- Penny-exact allocationSplit 100.00 three ways and get 33.34 / 33.33 / 33.33 — never a cent left in suspense. Put your own figures in and get the schedule behind this entry.Tool
- Revenue recognition, explained for foundersRevenue is recognized as you deliver what the customer is paying for, not when the invoice goes out or the cash lands.Doc
- Journal entry for deferred revenueWhen an annual contract is invoiced up front, debit Accounts receivable and credit Deferred revenue. As each month of service is delivered, debit Deferred revenue and credit Revenue for that month's share.Entry
- Journal entry for accrued revenueAt month-end, debit Unbilled receivables and credit Revenue for work delivered but not yet invoiced. When the invoice goes out, debit Accounts receivable and credit Unbilled receivables.Entry
- Journal entry for a sale on accountFor a sale on credit, debit Accounts receivable and credit Revenue for the price; under a perpetual inventory system also debit Cost of goods sold and credit Inventory for what the goods cost. When the customer pays, debit Cash and credit Accounts receivable.Entry
- RevenueWaterfallDeferred balance recognizing by future period.Component
- JournalEntryDebit and credit as two columns. No signed-column variant.Component
An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.