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SL_110
January 10, 2025
Question

Deferred Revenue

  • January 10, 2025
  • 1 reply
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My company recognizes revenue when it is cleared, deposited at the bank.  At the end of the year we have one payment received, showing up correctly as undeposited funds as it was not deposited until this year.  The issue is our sales are overstated for the prior year and understated for the current year, according to our revenue recognition.  Before closing the prior year should we make an adjustment entry to debit sales and credit deferred revenue on the last day of the previous year and another on the 1st day of the current year debiting deferred revenue and crediting sales?  Thank you.

1 reply

Rainflurry
Rainflurry
January 10, 2025

@SL_110 

 

Just to clarify, the IRS requires you to recognize the revenue when you have "constructive receipt" of the funds regardless of when you deposit them in the bank.  From the IRS's perspective, you have income as of Dec. 31, not when you deposit the funds in January.  Otherwise, businesses could hold onto weeks of December deposits until January, thereby shifting their income (and tax liability) to the new year.  If you're intentionally trying to shift income, then you will need to figure out the proper entry on your own.  If you're not, please confirm.  

 

 

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