Accruals & Deferrals

Revenue recognition based on earned income, rather than issued invoices.

Miel De Rycke avatar
Written by Miel De Rycke
Updated over a week ago

In the world of accounting, accruals and deferrals play a pivotal role, particularly for creative agencies. They allow us to manage revenue recognition in line with the work done rather than the invoices issued. Accruals are revenues earned before the cash transaction takes place, whereas deferrals are revenues that are recognized after the cash transaction. This article will delve into how wayahead allows you to ensure a fair representation of a company's finances, irrespective of when the invoices are issued, based on the invoicing data and forecasting data.

What are Accruals & Deferrals?

The most common use case in creative agencies is deferred income. Here's a simple example: It's December and your customer is asking you to issue them a $20k invoice so they can use up their marketing budget for the calendar year. This is a cash transaction for work you haven't delivered. We can put the $20k in our books, but we can't actually recognise the $20k as revenue until we have actually delivered the corresponding work.

wayahead now lets you take an invoice from Streamtime and spread parts of the income over different months both in the future (deferred) or in the past (accrued).

Note that wayahead's Accruals & Deferrals specifically deal with this scenario: moving the income date and value of your invoices, draft invoices and forecasts. It is not a tool that will automagically work out the recognised revenue for you on your work in progress jobs based on the work logged or completed.

In the example above, we might do $5k of work each month for the customer between January and April. Using the Accruals & Deferrals, we will break the original $20k down into 4 x $5k each in a different month.

How are Accruals & Deferrals used?

There are currently 2 places were accruals and deferrals are used. In the report itself you can see the current status and balance of your accrued and deferred work.

The other one is the New Forecast. Once you have created records in this report, a new button will appear in the New Forecast allowing you to either see the Forecast.

When showing Billings, the Forecast shows invoices and forecasts on the date they are issued. When showing Revenue Recognition mode, wayahead will swap out the original records and replace them with as many new records as there are entries.

In our last example, one $20k invoice would be replaced with 4 x $5k pills in the Forecast. These new pills get a dotted line around them to indicate that they are not actual invoice records, but accruals and deferrals.

List view

The list of accruals & deferrals shows the following information:

  • Job number, job name, client name

  • Job Lead

  • Budget: The final budget on the job (from approved quotes or manual entry)

  • Relation: Which invoice or forecast does this record relate to? A job could have 2 invoices, a draft invoice and 2 forecasts, the relation determines which one of the 5 is being accrued/deferred.

  • Date: Invoice or forecast date.

  • Accrued / Deferred: Shows an arrow pointing backward (accrued) or forward (deferred) to indicate whether the revenue is recognised before or after the relation date. Hover over the arrows to see a tooltip with more details.

  • Total Value: the original value of the Invoice or Forecast

  • Spread Value: How much of the original value has been spread over time?

  • Remaining to Spread: How much of the original value do we still need to spread over time in order to spread the full value? Ideally this value should be 0. If it is not 0 you should click this line and modify the spread.

  • Recognised to date: What part of the spread values has a date before today. In other words, how much have we recognised so far?

  • Variance to Date: Total value - recognised to date. How much do we have left to recognise on this invoice/forecast?

The last two columns are the key values we are after. How much have we recognised to date and how much do we still owe our clients.

You will always find that

Total Value + Remaining to Spread = Recognised to date + Variance to Date

Creating new records

To get started, just open the Accruals & Deferrals report from wayahead and click the + New button at the top right of the page, start tying a job number, job name or client name in the dropdown and choose the job from the list.

As soon as you choose a job, wayahead will fetch all related invoices and forecasts for that job so you can choose which (projected) income you wish to accrue or defer.

Then fill in the spread of values. You can add as many lines in this list as you like by clicking + for a new line. Each line must have a date and an amount. You can choose the exact date, so values are not automatically recognised on the first or last day of the month.

The lines are automatically sorted by the date (old to new) and wayahead will automatically fill in the amount remaining to spread for any new record. Click an existing line to change the value or the date and leave yourself some internal notes to remember the context.

At the bottom of the list you'll also see the value recognised to date and the value remaining to spread – these values are the same ones you see in the list view.

Accruing Forecast records and updating them.

You will find it is possible to accrue income for forecast. A simple example: I am planning to bill my client $10k 3 months from now, but I already want to recognise $5k this month and $5k next month. To do this, you could either create a draft invoice in Streamtime and accrue it. Or you could create a Forecast in wayahead instead. At some point though, this forecast record will need to be replaced with a (draft) invoice.

If you link an Accrual/Deferral to a Forecast item you'll find you can change the Forecast data and value from this window.

When an Accrual & Deferral record was initially linked to a Forecast and you chance it to link to an invoice instead, it is most likely because the Forecast is replaced with an invoice. wayahead will automatically show you an alert asking if you wish to automatically delete the original Forecast.

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