Automate Deferred Revenue in QuickBooks

Automating deferred revenue in QuickBooks can streamline financial processes and enhance accuracy, especially for SaaS and subscription-based businesses. QuickBooks Essentials and Plus have limitations in handling deferred revenue due to required manual entries and complexities in recurring revenue models. Businesses can overcome these by leveraging tools like Accruer by FinOptimal, which integrates seamlessly with QuickBooks to automate calculations, eliminate errors, and customize revenue schedules. Integrating third-party solutions or using QuickBooks Online Advanced features can also help deferred revenue management, and help certain businesses comply with ASC 606 and IFRS 15. 

Key Takeaways

• Integrate Accruer by FinOptimal with QuickBooks for automated deferred revenue and revenue recognition.
• Utilize QuickBooks Online Advanced features to automate deferred revenue processes.
• Leverage third-party tools for alternative automation options in QuickBooks.
• Implement customizable revenue recognition schedules to streamline deferred revenue tracking.
• Use automation tools to comply with ASC 606 and IFRS 15 standards.

Overcoming QuickBooks' Limitations in Revenue Recognition

While QuickBooks offers robust features for financial management, it falls short in handling deferred revenue thoroughly with the Plus and Essentials tiers

This limitation can be challenging for businesses that require precise revenue recognition.

Addressing these gaps involves adopting supplementary strategies and tools to guarantee accurate financial reporting and compliance.

Limitations of QuickBooks in managing deferred revenue

QuickBooks Online Plus and Essentials has limitations when it comes to managing deferred revenue, especially for SaaS and subscription-based businesses:

• Manual processes and calculations: QuickBooks Online often requires manual calculations and journal entries to properly recognize deferred revenue. This can be time-consuming and prone to errors, especially as the volume of transactions increases.
• Inflexibility with recurring revenue models: QuickBooks Online is primarily designed for cash accounting, which doesn't align well with the recurring revenue model of SaaS businesses. It struggles to automatically spread revenue recognition over multiple periods as required for subscription services. Just clicking the “accrual” button in QuickBooks doesn’t mean you’re now accurately reporting accrual basis financials!
• Difficulty handling contract changes: SaaS contracts frequently change due to upsells, downsells, and renewals. QuickBooks Online Advanced offers a product-based revenue recognition module, but users report it lacks the flexibility to modify transactions mid-contract.
• Limited flexibility and customization of recognition periods: While QuickBooks Online Advanced offers some automated revenue recognition features, it is based on the Product or Item selected. For businesses who sell contracts with varying length, you will need to maintain a large Product list to ensure all of your potential contract periods can be selected. For businesses selling products or services with a static date (think about selling tickets for an event), you may need to develop process workarounds.
• Lack of SaaS-specific metrics: QuickBooks Online doesn't provide built-in reporting for key SaaS metrics related to deferred revenue, such as recognizable revenue, unbilled accrued revenue, and other subscription-specific analytics.
• Scalability issues: As businesses grow and their revenue recognition needs become more complex, QuickBooks Online may struggle to keep up, potentially leading to increased manual work and risk of errors.

Strategies to address these limitations

Implement revenue recognition automation software: QuickBooks revenue recognition processes are largely manual, which can lead to errors and inefficiencies. Specialized revenue recognition automation tools can help overcome these limitations by providing instant access to key data and automating calculations.

Use a subscription management platform: Certain SaaS billing platforms also offer revenue recognition components, but you are often obligated to purchase all of the functionality rather than just the revenue recognition functionality. This may not be feasible for businesses with a low invoicing volume, or with nuanced revenue recognition requirements. 

Upgrade to QuickBooks Online Advanced: This version offers automated revenue recognition features that can help track and enter deferred revenue automatically, reducing manual work in spreadsheets. QuickBooks Online Advanced is more than double the price of the next highest tier. QuickBooks Online Advanced’s revenue recognition system is based on product type, so users must maintain a detailed product listing if different recognition periods are in play. SaaS contracts often evolve with upsells, downsells, and renewals, so it is important to consider how QuickBooks Online Advanced recommends handling these scenarios.

Create a manual process with spreadsheets: A traditional approach to deferred revenue in QuickBooks involves maintaining an outside spreadsheet to calculate monthly entries. Users will log activity with customers and contracts on the Y axis, and months on the X axis. While this process may be suitable for some businesses, it is very prone to errors and can become unmanageable as a business scales. Transposing this journal entry into QuickBooks can also be troublesome.

Consider integrating with an ERP: For mature SaaS companies, upgrading to an Enterprise Resource Planning (ERP) system like Sage Intacct or NetSuite can provide more robust financial reporting capabilities. However, you should consider the cost and time to implement, and the rigidness of ERP systems. If your business values flexibility, be wary of changing systems too early as you may end up with manual processes in the next system as well. 

Accruer by FinOptimal

Accruer by FinOptimal seamlessly integrates with QuickBooks to automate deferred revenue, eliminating manual entries and reducing errors.

Implementing Accruer is straightforward, requiring a simple setup process that aligns with your existing accounting workflows.

How it works in QuickBooks

1. Integration with QuickBooks: Accruer seamlessly integrates with QuickBooks Online, allowing users to automate accruals without manual data entry. With a few clicks you’re connected and all of your accounts are validated!
2. Onboarding existing entries: You post one journal entry in QuickBooks for all of your partially recognized contracts and Accruer will handle them from there!
3. Automated journal entries: The software automatically creates journal entries for accruals, eliminating the need for manual entry of each transaction. You simply write “for the period” and specify the recognition dates, and Accruer will handle it from there!
4. Simplified accrual accounting: Accruer makes it easier for small business owners and accountants to implement accrual accounting without needing extensive knowledge of the process. If you can spell “for the period,” you can do accrual accounting!
5. Customizable settings: Users can manage the revenue recognition settings to align with their approach and methodology..
6. Real-time financial insights: By automating accruals, businesses can access up-to-date financial information, enabling better decision-making. Accruer automatically generates a schedule of all of your deferred revenue as well as a revenue recognition waterfall.

How to implement Accruer

Setup is totally self service! You can get started in 20 minutes by watching a few short videos in our app.

1. Connect your QuickBooks file to the app. The sync will happen automatically and prompt you when it’s ready to go!
2. Select your settings. Simply identify the relevant asset and liability accounts for deferred revenue, and Accruer will handle the rest! You will also optionally set a backwards-looking lock date, and determine how far into the future you want to see entries booked. 
3. Optionally, you can also onboard all of your partially recognized transactions with one simple journal entry!

Benefits of Automated Deferred Revenue

Automating deferred revenue recognition offers a multitude of benefits that streamline financial processes and enhance overall business efficiency. Key advantages include:

• Improved Accuracy and Compliance: Automated financials help achieve compliance with accounting standards like ASC 606 and IFRS 15, reducing errors and misstatements.
• Real-Time Financial Insights: Automation provides real-time financial insights, enabling quicker decision-making and more precise forecasting.
• Scalability: Automated systems manage increased transaction volumes effortlessly, offering scalability without additional staff.
• Reduced Risk of Revenue Leakage: Automation minimizes revenue leakage by precisely tracking contractual obligations and recognizing revenue appropriately.

Additional benefits include improved audit trails, enhanced customer insights, and streamlined financial reporting, all contributing to a more efficient financial management ecosystem.

FAQ

How do I track deferred revenue in QuickBooks?

To track deferred revenue in QuickBooks, you can create a liability account and use journal entries to record payments received in advance. As you deliver the goods or services over time, you'll gradually recognize the revenue by transferring amounts from the liability account to an income account.

What can I automate in QuickBooks?

QuickBooks offers numerous automation opportunities, including invoice generation, recurring transactions, and bank reconciliation. By automating these tasks, you can save time and reduce errors in your bookkeeping processes.

Does QuickBooks automate journal entries?

QuickBooks Online Advanced automates journal entries for deferred revenue, but if you use other versions of QuickBooks Online you will need a third-party app such as Accruer to automate journal entries. 

Is Accruer compliant with industry standards and regulations (e.g., GAAP, IFRS)?

Accruer can help users book entries according to their accounting policies. We recommend Accruer’s help guide and your own internal accounting policies around revenue recognition to ensure they align with your expectations. 

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