how to defer income until next year in Quicken Home And Business

RandallSF

I am setting up a new business that will receive some income this year for services that will only be delivered next year. I set up an invoice account for AR, but how to I defer income to next year when an invoice has been fully paid? (i.e., the invoice covers training in 2022 and 2023, but I only want the payment for 2022 training to show up as business income for this year)

volvogirl

How is your business set up for taxes?  Cash or Accrual Method?  Normally you report income when it's received and expenses when paid no matter what year the service happens. 

RandallSF

We will use accrual meth - it is new this year so just starting. essentially the participants in the training are paying up front for training both this year and next year (they get a discount), so ideally some of the income should be deferred to match expenses next year. Thanks!

RandallSF

@volvogirl do you have suggestions? Thank you!

Tom Young

The common way to defer income received is to enter an offset to a balance sheet liability Account instead of a current income Category.  Then, when it's time to recognize the income, you reduce the balance in the liability Account with an offset to the income Category.

I've never use H&B but I thought it had an upfront question at to using the cash method or accrual method?

RandallSF

@Tom Young Thank you. Yes, H&B allows you to use accrual accounting and it also allows you to set up asset and liability accounts. My challenge is that I know very little about accounting, so am not sure how to set this up and how to account for the fact that some cash received in 2022 is for services to be received in 2023. Do you know anywhere I could find a step by step guide to setting this up?

RandallSF

If I understand correctly, I should create a liability account called "deferred revenue". When I receive $1000 by check this year for a service in 2023, I should bank account receipt as "deferred revenue", so it goes into that liability account. Then, in 2023 when the service is delivered, I should do enter a $1000 debit transaction in the "deferred revenue" account and a $1000 credit to "training income" (i.e., the category that is business revenue for the current year). Let me know if I am going in the right direction - thanks!

Tom Young

You've got it.  The money sits on your balance sheet as a form of liability, (services that you're obligated to deliver some time in the future), and then comes off of the balance sheet and into some sort of income Category as "earned."