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Money has been received that covers a period that crosses into the next fiscal year. As Income/Expense accounts zero out to fund balance, how can I carry part of this into the next fiscal year?

I think this would be considered Deferred Income. Upon receipt cash was debited and revenue credited. Would I move the next fiscal year portion from the revenue account to a deferred income liability account in the current fiscal year then move back to revenue upon beginning of the next fiscal year?
Rhonda Mitchell


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By neileg
03rd Jan 2003 09:28

Sounds OK to me
If the income is such that it needs to be spread over two years then the accounting entries you suggest are correct.

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By Abacjm
03rd Jan 2003 16:32

Income Accrual
I would simply accrue on a time basis if you need to by way of auto reversing year end accrual so that the Accounts show the correct time based income in P&L and a corresp debtor in B/S. Once you move on to next year's a/cs, the accrued income would reverse automatically the above entries and the reality of the transaction will be posted as normal.

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10th Jun 2007 15:35

Deferred Income
You are right to treat this as deferred income.
However, be careful with your double-entry.
If you receive cash from invoiced sales, it is generally the case that you Credit Debtors (B/S) and Debit Cash (B/S). There is no P&L effect as the Sales have already usually been recognised at invoice. Receiving the cash serves merely to liquidate the asset.

Given the following balances in the accounts (for example):

Cr Sales (P&L) £1000
Dr Debtors (B/S) £1000

the following should happen on cash receipt:

Cr Debtors (B/S) £1000
Dr Cash (B/S) £1000

Given that some of this income relates to a future period (e.g. £60) the following should then happen to put the transaction right:

Cr Deferred Income (B/S) £60
Dr Sales (P&L) £60

In order to avoid future year-end problems, I would get into the habit of treating items like these consistently throughout the year, usually when preparing month-end mangament accounts. Consistent treatment should be:

e.g. £200 invoiced, £150 of which relates to a future period.

Cr Sales £50
Cr Deferred Income £150
Dr Debtors £200

Cash Receipt:
Cr Debtors £200
Dr Cash £200

As Deferred items mature:
Cr Sales
Dr Deferred Income

It is allowable to show accruals and deferred income as separate line on the balance sheet below the net current assets line. This may be useful in communicating liquidity to investors more clearly.

Hope this helps

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