Deferring revenue and expenses

If you post an annual subscription or a prepaid insurance in one go, the result becomes skewed from month to month. Deferral spreads the amount over the periods it belongs to. In Business Central, deferral templates do this automatically when you post the sales or purchase document. Here are the setup, the use and the checks you should know about. It is a function that saves manual journals every month.

Two balance accounts and a template

You need general ledger accounts of type Balance Sheet for the deferred amounts. Microsoft suggests, for example, one account for prepaid revenue and one for accrued expenses. Create them in the chart of accounts.

Then open the Deferral Templates page and create a template. The Calc. Method field determines how the amount is spread across the periods:

Give the accounts names that show their purpose. Then it is easy to see on the balance sheet what is waiting for later revenue recognition and what has been paid in advance.

Straight-Line: spread by the number of periods and the length of the periods.
Equal per Period: spread equally over each period.
Days per Period: spread by the number of days in the period.
User-Defined: you fill in the amount for each period yourself.

Period description

In the Period Desc. field you write the text that appears on the postings. You can use placeholders, for example %4 for the name of the month and %6 for the fiscal year. The text 'Expense deferred for %4 %6' becomes 'Expense deferred for February 2025' on the posting concerned.

Use a fixed template for each type of deferral, for example twelve months straight-line for annual subscriptions. Then everyone on the team can choose the right code without calculating it themselves.

Link the template to items, resources and accounts

The template can be set as the default on an item, a resource or a general ledger account. On items you find the Default Deferral Template field under Costs & Posting. When you select the item, resource or account on a line in a sales or purchase invoice, the Deferral Code field is filled in automatically.

The template can also be set on a general ledger account. If the account is selected on a line, the code follows, and the user does not have to remember it. This saves time especially on recurring purchases.

Adjust the schedule on the individual document

On the document line you choose Deferral Schedule. Here you can change headers or lines, for example to move an amount to another period, and choose Calculate Schedule. The change applies only to the document. The template is unchanged.

Use Preview Posting before posting. Under the general ledger entries you can see which entries go to the deferral account, recognisable by the period description you entered. Deferrals also work in general journals.

You can also use deferral directly in a general journal if the entry does not come from a sales or purchase document. This is practical for prepaid expenses that are posted through a journal.

Posting periods and checks

If you have restricted the posting dates, you must make an exception for deferrals. You do this in the Allow Deferral Posting From and To fields on General Ledger Setup or User Setup.

For reconciliation there are the reports G/L Deferral Summary, Sales Deferral Summary and Purchasing Deferral Summary, where you choose a balance date. Microsoft has also added three list pages for analysing unposted deferral lines. This appears in the release plan for 2025 release wave 2.

Review the deferral reports as a fixed item in the month-end close. The balance on the deferral accounts must agree with what the report shows on the date.

A warning about source codes

Learn mentions that sales and purchase journals validate the source code. When you use deferrals, the source codes for the two journals must not be identical. If they are, you can create a new template and batch with a different source code.

How deferrals are to be reflected in the annual accounts depends on your accounting rules and your own practice. Agree it with your auditor.

Check the posting descriptions after the first run, so that auditors and colleagues can read them without explanation.