Revenue Recognition and Automatic Distribution Over Periods

Wafeq allows you to automatically distribute revenue—such as annual subscriptions or long-term contracts—across the relevant accounting periods. This ensures revenue is recognized in each period based on its actual share, rather than being recorded in full at once, providing a more accurate reflection of financial performance over time.

Creating a Deferred Revenue Account

Before using the revenue distribution feature, ensure you create a Deferred Revenue account to use in the invoice.

Steps:

1. Go to "For Accountants" from the main menu.
2. Click on "Chart of Accounts".
3. Under the "Liabilities" section, select the appropriate group (e.g., Current Liabilities).
4. Click the "+" (Add sub-account) button next to the group.
   
   

After clicking the "+" button next to the liabilities group, a list of options will appear.

5. Select "Add sub-account".
   
   
    

The account will be created. Scroll down to find it, then click on it and rename it to "Deferred Revenue".

Creating a Sales Invoice with Revenue Recognition

1. Start by creating a sales invoice that includes the revenue to be distributed:

2. Go to "Sales" from the main menu, then click on "Sales Invoices".

3. Click the "Create" button.

   
   
   
    

4. Enter the basic invoice details such as (Customer, Date, Amount…).

5. In the invoice line:

6. Description: Enter a description that reflects the nature of the revenue (e.g., annual subscription, service contract, maintenance).
7. Amount: Enter the total revenue amount (e.g., 12,000).
8. Account: Select the "Deferred Revenue" account, which temporarily holds the amount before it is recognized as actual revenue over time.

Adding Revenue Recognition

After selecting the account, click on:

"Revenue Recognition"

Then enter the following details:

• Start Date: Specify when revenue recognition begins.
  You can enter it manually (e.g., 01-05-2026), or enable the option to use the invoice date automatically.
  ⚠️ If the start date is not the beginning of the month, the first period will be calculated partially.
• End Date: Specify the end of the period or the number of months over which the revenue will be distributed (e.g., 12 months).
• Revenue Account: Select the account where revenue will be recognized (e.g., Subscription Revenue or Sales).
• Distribution Method: Define how the amount is allocated across periods:
  • Equal monthly distribution: Same amount each month
  • Based on days in month: Varies depending on the number of days

A distribution schedule will be generated automatically, showing:

• Revenue amount per period
• Posting date
• Remaining balance

After completing the setup, click "Save".

Saving the Invoice and Tracking Distribution

1. Save the invoice

2. Once approved, The full amount is recorded as Deferred Revenue

3. The system automatically creates periodic journal entries to recognize revenue over time

   Example:

   12,000 over 12 months
   → 1,000 is recognized each month
   → Deferred Revenue balance gradually decreases to zero

4. To review the revenue distribution after approving the invoice:

   Go to the "Revenue Schedule" tab.