JE-11 Jan 2026Manualposted
Invoice the annual contract.
| Account | Dimensions | Debit | Credit |
|---|---|---|---|
| 1100 Accounts receivable | 24,000 US Dollar | ||
| 2400 Deferred revenue | 24,000 US Dollar | ||
| Totals | 24,000 US Dollar | 24,000 US Dollar | |
Balanced.
Journal entry for deferred revenue
When 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.
- Annual contract
- $24,000
- Revenue per month
- $2,000
- Deferred after January
- $22,000
- Entity
- Illustrative company
- Basis
- Accrual
- Currency
- USD
- Period
- January 2026
The worked example
A customer signs a $24,000 annual subscription starting January 1, 2026, invoiced that day and paid on January 15, 2026. The service is delivered evenly, so $2,000 is earned each month.
Transaction · January 1, 2026
Transaction · January 15, 2026
JE-215 Jan 2026Manualposted
Collect the invoice.
Journal entry JE-2, 2 lines Account Dimensions Debit Credit 1000 Cash 24,000 US Dollar 1100 Accounts receivable 24,000 US Dollar Totals 24,000 US Dollar 24,000 US Dollar Balanced.
Adjusting entry · January 31, 2026
JE-331 Jan 2026Adjustingposted
Recognize January's service.
Journal entry JE-3, 2 lines Account Dimensions Debit Credit 2400 Deferred revenue 2,000 US Dollar 4000 Revenue 2,000 US Dollar Totals 2,000 US Dollar 2,000 US Dollar Balanced.
Deferred revenue, recognized as the service is delivered
Computed by the same tested function the toolbelt runs. The last period absorbs any rounding, so the schedule sums to the cent.
| Month | Revenue recognized | Deferred remaining |
|---|---|---|
| Jan 2026 | 2,000.00 | 22,000.00 |
| Feb 2026 | 2,000.00 | 20,000.00 |
| Mar 2026 | 2,000.00 | 18,000.00 |
| Apr 2026 | 2,000.00 | 16,000.00 |
| May 2026 | 2,000.00 | 14,000.00 |
| Jun 2026 | 2,000.00 | 12,000.00 |
| Jul 2026 | 2,000.00 | 10,000.00 |
| Aug 2026 | 2,000.00 | 8,000.00 |
| Sep 2026 | 2,000.00 | 6,000.00 |
| Oct 2026 | 2,000.00 | 4,000.00 |
| Nov 2026 | 2,000.00 | 2,000.00 |
| Dec 2026 | 2,000.00 | 0.00 |
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 |
|---|---|---|
| 1000 Cash | 24,000 US Dollar | |
| 2400 Deferred revenue | 22,000 US Dollar | |
| 4000 Revenue | 2,000 US Dollar | |
| Totals | 24,000 US Dollar | 24,000 US Dollar |
One account nets to zero across the entries and is not shown.
Why it is booked this way
Billing a year up front does not earn a year of revenue. Under ASC 606 revenue follows the satisfaction of the performance obligation — here, a year of software access delivered evenly — so the billing creates a liability for the service still owed.
Each month the company delivers a month of service and moves that slice from deferred revenue to revenue. Collecting the cash is a separate event that clears the receivable and has nothing to do with when revenue is earned.
Common mistakes
- Booking the whole annual invoice as revenue in the month it is sent.
- Recognizing on the payment date rather than as the service is delivered.
- Leaving deferred revenue unreconciled to the contract schedule, so churned or upgraded customers leave balances behind.
Questions
- Is deferred revenue a liability?
- A liability. The company has been paid, or has billed, for service it still owes the customer. If it stopped delivering it would owe the money back.
- Should I book deferred revenue when I send the invoice?
- Under ASC 606 the contract creates no asset or liability until one party performs. Many companies therefore book deferred revenue only when the invoice is due or paid, not when it is merely sent. The entry here bills on day one with payment due, which is the common annual-SaaS case.
- Is deferred revenue the same as unearned revenue?
- They are the same account under two names. Deferred revenue is the term most US companies and ASC 606 use; unearned revenue is the older textbook name.
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.
- Prepaid & deferred releaseA premium paid on the 17th does not release in twelve equal slices. Day-weighted, or even — your call. Put your own figures in and get the schedule behind this entry.Tool
- Deferred revenue, explained for foundersMoney a customer has paid, or owes on a non-cancellable invoice, for something you haven't delivered yet. It's a liability until you earn it.Doc
- Accrual basis vs cash basisCash basis records revenue and expenses when money moves; accrual basis records them when they are earned and incurred — so a cost paid a year in advance is one month's expense under cash and twelve months' under accrual.Compare
- Deferred revenue vs accrued revenueDeferred revenue is cash billed or received before the work is done, a liability; accrued revenue is work done before it is billed, an asset — they are the same timing gap in opposite directions.Compare
- Accrual vs deferralAn accrual records revenue or expense before the cash moves; a deferral records cash that has moved before the revenue or expense is recognized — accruals create receivables and payables, deferrals create prepaids and deferred revenue.Compare
- Journal entry for a customer depositWhen a customer pays a deposit, debit Cash and credit Customer deposits. On delivery, debit Customer deposits for the deposit, debit Accounts receivable for the balance, and credit Revenue for the full price.Entry
- Journal entry for a bundled contract under ASC 606For 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.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
- RevenueWaterfallDeferred balance recognizing by future period.Component
- ScheduleTableOne shell, seven presets. Prepaids through debt.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.