When switching revenue recognition from your previous system, you will likely have some differences in the starting balance sheet for deferred revenue due to differences in methodology.
Best practice is to make a one-time adjustment to the P&L and balance sheet.
Option 1 - retain your current balance sheet liability account.
Follow these steps to make your adjustment:
1. Determine the balance sheet difference. This can be found in Section 6 of the deferred revenue journal. See detail of the ScaleXP balance sheet amount by downloading the detailed journal for the month end you wish to align. See this article for how to download journal detail for a month.
2. Determine which P&L accounts need adjusting for the associated revenue adjustment.
- If you need to reduce the balance sheet, you will need to recognise additional income.
- If you need to increase the balance sheet, you will need to reduce income.
- This is to reconcile for the difference in the historic amount recognised.
3. Create a manual journal in your accounting system for the balance sheet adjustment.
4. Create a manual adjustment to invoiced income in ScaleXP. Follow the instructions in this article to create the adjustment.
Option 2 - set up a new balance sheet liability account
If your previous accounting methodology was very different from the one used by ScaleXP, we recommend setting up a new Deferred Revenue account to use for ScaleXP to simplify audits and month end process going forward.
Follow these steps:
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Transfer a starting balance from the old account to the new account to match the ScaleXP amount in Section 6a of the ScaleXP Deferred Revenue Journal page.
- Dt previous Liability
- Ct new Deferred Liability Account
- Set the new account as your default account for deferred revenue in ScaleXP
- Ensure the new balance sheet account is selected in your suggested deferred revenue journal, along with all relevant P&L codes.
- Follow the steps in Option 1 above to bring the amount in the previous balance sheet to zero.