Open TurboTax

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
Announcements
Your taxes, your way. Get expert help or do it yourself. >> Get started
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

cancel
Showing results for 
Search instead for 
Did you mean: 
toddcrab
Level 2

For small businesses that use the accrual method of accounting, can I just move excess deferred revenue to income?

My company was set-up using the accrual method of accounting because our customers and clients often receive discounts for "prepaying" for services in advance.  Those prepaid services are not refundable to clients after 90 days, and some of those clients will go years before using all their prepaid services.  The consequence of that is that my deferred revenue account has got too large over time and I'm wondering if I can just transfer some of that revenue to income - and what the best way to handle that is in my accounting software (quickbooks).

Do I simply create an income line on my P&L for "prepaid services" or something of that nature?  Is it that simple?  I just don't want to screw it up.

1 Best answer

Accepted Solutions
MinhT
Expert Alumni

For small businesses that use the accrual method of accounting, can I just move excess deferred revenue to income?

If the prepaid services are not forfeited, you should not transfer them to income. They remain a liability of the company as long as your clients can still use them, even if they are longer refundable.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

3 Replies
MinhT
Expert Alumni

For small businesses that use the accrual method of accounting, can I just move excess deferred revenue to income?

If the prepaid services are not forfeited, you should not transfer them to income. They remain a liability of the company as long as your clients can still use them, even if they are longer refundable.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
toddcrab
Level 2

For small businesses that use the accrual method of accounting, can I just move excess deferred revenue to income?

Okay, that makes sense.  But I thought I read that deferred revenue had to be "declared" no later than the next tax year . . . for income tax purposes.  Is that true?  I mean, what if someone pays a retainer and doesn't use it for 2 and half years?
MinhT
Expert Alumni

For small businesses that use the accrual method of accounting, can I just move excess deferred revenue to income?

There is no rule to transfer deferred revenue to income in the next tax year. For the retainer, you transfer to income when the customer are no longer entitled to your services.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

About Community

Learn about taxes, budgeting, saving, borrowing, reducing debt, investing, and planning for retirement.

3.48m
Members

2.61m
Discussions

Manage cookies
v