How to Implement Deferred Revenue in Zoho Books (Using Journals)

How to Implement Deferred Revenue in Zoho Books (Using Journals)

I actually came across this challenge while working with a large international school group in South Africa.

They had more than 2,000 students across different branches, and the way they charged fees wasn’t straightforward at all:

• Parents could pay the whole year upfront at a discount.
• Or choose to pay monthly.
• If siblings enrolled together, extra discounts applied.

The real accounting issue came when parents paid the full year’s fees in advance. The school couldn’t record that entire amount as revenue on day one, because classes were spread across 11 months (with one month off for holidays).

To keep the books accurate, the income had to be recognized month by month. Without deferred revenue, the reports would have looked completely wrong compared to the actual services being delivered.

That experience showed me why deferred revenue isn’t just an accounting detail it’s a must for any organization that collects advance payments.

In this guide, I’ll walk you through how to make it work inside Zoho Books.

The goal of this guide is to provide a clear and actionable process for implementing deferred revenue in Zoho Books.

This guide will outline multiple approaches to handling deferred revenue in Zoho Books, allowing users to choose a solution that best fits their business needs and technical capabilities.

What is Deferred Revenue?

Deferred Revenue, also known as unearned revenue, refers to the advance payments a business receives for products or services that will be delivered in the future.

Since the service or product hasn’t been fulfilled yet, this money cannot be recognized as revenue immediately.

A Simple Example

Let’s say you run a small business offering software subscriptions. A customer pays you $12,000 for a 12-month plan upfront in July.

Technically, you haven’t earned the full $12,000 yet. However, you’ll be earning $1,000 each month as the service is delivered.

So, until the service is fully delivered, that $12,000 sits on your books as Deferred Revenue ( a liability), because you still owe the service to your customer.

Did you know that QuickBooks Online already has Revenue Recognition feature ?

https://quickbooks.intuit.com/online/advanced/revenue-recognition/#

You might be wondering, “If QuickBooks has this feature, why can’t Zoho just add it?”

Trust me, Zoho users are asking the same thing on community forums.

https://help.zoho.com/portal/en/community/topic/how-to-record-deferred-revenue

https://help.zoho.com/portal/en-gb/community/topic/unearned-deferred-revenue-automatic-calculation-for-subscriptions

Zoho’s Billing software blog explained the concept of deferred revenue recognition, but they do not have a solution in their software yet.

https://www.zoho.com/billing/academy/payment-collection/revenue-recognition.html

But here’s the deal

Zoho hasn’t rolled it out yet, so we can’t just flip a switch like QuickBooks Advanced users.

Good news, though!

With a bit of setup, you can still handle deferred revenue in Zoho Books.

And I’m about to walk you through it, step by step, no waiting on Zoho’s roadmap required.

How to Implement Deferred Revenue in Zoho Books (3 Options, Step by Step)

There are three options

1. Using recurring journal entries manually
2. Using a custom function and a deluge script for automatic journal entry
3. Fully Automated Custom Program

Zoho Books doesn’t offer built-in deferred revenue automation (as of now), but you can manage it manually with the help of the Chart of Accounts, Invoice, and Recurring Journals.

Step-by-Step Guide Option 1 : Using Recurring Journal Entries

Open your Zoho Books Account as an Administrator

1. Create a Chart of Accounts (COA)

• Go to Accountants > Chart of Accounts
  

  

• Create a new account:
  • Account Type: Other Current Liability
  • Account Name: Deferred Revenue

  This COA will be used to hold the unearned portion of your invoice amount.

  

2. Create an Item (Product/Service)

• Create a subscription item or service item you are selling.

• While creating, map the Income Account to the “Deferred Revenue” liability account you just created.

  This ensures that when an invoice is raised, the amount is not shown as immediate income, but instead gets posted to Deferred Revenue.

  

3. Raise an Invoice

• Create an invoice using the item.
• For example, an Invoice of $12,000 for a 12-month subscription.
  

  

  Now, the full $12,000 will be posted to the Deferred Revenue account on the balance sheet.

  

4. Create Recurring Journal Entries

To recognize the revenue month by month:

• Go to Accountant > Recurring Journals
  

  

• Create a new recurring journal with these entries:
  • Debit: Deferred Revenue $1,000
  • Credit: Sales (or your actual Revenue Account) $1,000
• Set the frequency to Monthly and duration to 12 months.
  

  

  This setup ensures revenue is recognized evenly over the contract period.

5. Reporting View

After passing these journal entries, you can now:

• See revenue gradually appearing in your Profit & Loss report each month.
  

  

• Track the remaining Deferred Revenue on your Balance Sheet.
  

  

Deferred revenue is just one part of accurate financial management in Zoho Books. If you also handle commission payouts, don’t miss our step-by-step tutorial on how to calculate sales commission based on gross profit.

Conclusion

While Zoho Books doesn’t currently automate Deferred Revenue out of the box, this manual approach provides a clean and audit-friendly way to recognize revenue correctly over time.

While this manual approach is practical, it may not be suitable for businesses with a high volume of customers and items sold on a subscription or advance payment basis, making it essential to be aware of its limitations.

It’s important to acknowledge that performing all calculations and month-end journal entries is significant manual labor in a spreadsheet, and understanding the effort involved.

There is a clean way to do it. Using Zoho’s built-in automation capability.

In the next part, we’ll see how to automate deferred revenue recognition using a custom function and Deluge script in Zoho Books.