Deferring Revenue and Expense in Dynamics GP

Do you have a need to defer revenue or expenses by document or by a lump sum amount? If so, Revenue and Expense Deferrals (RED) may work for you. RED is included in Business Ready Licensing for Microsoft Dynamics GP, so you may already have the licensing for it.  (If you are a BKD client contact gpsupport@bkd.com if you are unsure of your licensing model, otherwise contact your Microsoft Partner).  Keep in mind that although RED may be included in your current licensing, the installation of it as an additional product may be necessary.

RED is fairly easy to configure, there is one primary setup screen to complete.

Deferral Setup Window

Financial Page | Setup | Deferral

The options specified in this window impact how the deferrals will function. Note the deferral transactions created will use the ALTRN source document code to identify them in the General Ledger. For a detailed explanation of each of these options, click the Help icon in the bottom left corner of the window to access context-sensitive help for this window. We’ll focus on two of the key settings highlighted in the middle of this window—Sales Series Posting Method and Purchasing Series Posting Method—and discuss the two available options, Balance Sheet and Profit/Loss.

If you use the Balance Sheet posting method, there will be two accounts involved in the deferral:  the deferral account, e.g., Deferred Revenue or Expense and the recognition account, e.g., Recognized Revenue or Expense. Let’s walk through an example:

  1. Enter a receivables transaction using the Deferred Revenue account for the credit distribution.
  2. Apply a deferral to the Deferred Revenue credit distribution.
  3. Entries are then created, according to the deferral, to debit the Deferred Revenue account and credit the Recognized Revenue account in order to recognize the deferred revenue.

One key point to emphasize here:  The transaction is posted to the Deferred Revenue or Expense account directly; the deferral then creates entries to recognize the revenue or expense over time (debit Deferred Revenue or Expense, credit Recognized Revenue or Expense).

The second method is more involved, as there will be five accounts involved in the deferral. Some of the accounts can be the same, but they can also all be different. The five accounts involved included:

  1. Profit and loss (P&L) account used for the original posting of the credit (revenue) or debit (expense)
  2. P&L account used when a deferral is applied to offset the original posting (this could be the same as Account No. 1 or different)
  3. Balance Sheet account used for the deferred amount, typically Deferred Revenue or Expense (this is the offset to Account No. 2)
  4. Balance Sheet account used when a deferral is recognized (this could be the same as Account No. 3 or different)
  5. P&L account used when a deferral is recognized, typically Recognized Revenue or Expense (this is the offset to Account No. 4 and could be the same as Account No. 1 or Account No. 2)

Let’s walk through an example:

  1. Enter a receivables transaction, and use a revenue (P&L) account for the credit distribution (Account No. 1).
  2. Apply a deferral to the revenue (P&L) credit distribution.
  3. Two types of entries are created, according to the deferral:
    • An entry to move the balance by debiting the revenue (P&L) account (Account No. 2) and crediting the Deferred Revenue account (Account No. 3)
    • Entries to recognize the deferred revenue by debiting a Deferred Revenue account (Account No. 4) and crediting the Recognized Revenue account (Account No. 5)

In this scenario, the transaction is posted to a Revenue or Expense account initially. The deferral creates the entry to move it out to Deferred Revenue or Expense, as well as the entries to recognize the revenue or expense over time.

The posting method you pick is dependent on several things:

  • Do the users entering transactions know to defer the revenue or expense? If so, Balance Sheet may be the easier method. But if they don’t know, the Profit and Loss method would allow them to enter the transaction using their standard revenue or expense account and then someone else could apply the deferral.
  • Do you want the visibility that a deferral has been applied? If so, Profit and Loss may be a better method for you as it provides visibility not only when the revenue or expense is recognized, but also when the deferral is applied (and the corresponding amount is moved to Deferred Revenue or Expense).

Once you have completed the Deferral Setup window, you are ready to enter a deferral. Simply navigate to the transaction you wish to defer. Currently, RED supports the following modules:

  • General Ledger
  • Receivables Management
  • Payables Management
  • Sales Order Processing
  • Purchase Order Processing
  • Invoicing

In my example, I have entered a payables management transaction, using the Purchasing Page | Transactions | Transaction Entry. I then clicked on the Distributions button to open the Payables Transaction Distribution Entry window.

From the distribution window, click on the distribution to defer. In the example above, the PURCH (Expense) line is selected. Then from the Additional menu, select Deferral.

Deferral Entry window

Accessed from the distribution window by using the Additional menu and selecting Deferral

The Start of Period and Deferral Account will default from the transaction (we are using the Balance Sheet posting method, so we used the Deferred Expense account on our transaction). The Amount to Apportion will default to the full distribution amount, although it can be edited to be less. Specify the End of Period, the Method (to determine how much is allocated per period) and the Cost Recognition account. The bottom portion of the window should then populate with the deferral schedule. If it doesn’t, or if you make a change that would impact the schedule, click Recalculate to reset the schedule.

You can edit the GL Posting Dates, Descriptions and Amounts displayed for the deferral schedule to further customize the deferral to meet your needs. If you chose an Amount to Apportion less than the distribution itself, you can click the Save Account button to save the deferral and enter a second deferral for the remaining portion. Then click OK to return to the distribution window to continue with transaction entry.

Documents with revenue and expense deferrals post in the same manner but create additional deferral transactions per the schedule you enter. These additional journal entries will be reflected on the General Posting Journal (printed when the entries post to the General Ledger):

This post dealt with manually entering deferral information. We should note RED also allows you to set up Deferral Profiles (Financial Page | Setup | Deferral Profiles) to apply standard deferral schedules to documents using the Additional menu and selecting Deferral Profile from the distribution window.

If you need to defer by line item, you might check out Binary Stream’s Advanced Revenue and Expense Deferrals product.

For assistance with Revenue and Expense Deferrals for Microsoft Dynamics GP, or to discuss Binary Stream’s Advanced Revenue and Expense Deferrals product, contact BKD’s Microsoft Dynamics GP Support Center at gpsupport@bkd.com.

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