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 "Accounting" 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.

Adjusting a Revenue Recognition Schedule Using a Credit Note

If you need to reduce the value of a sales invoice that contains a revenue recognition schedule, you can create a credit note and link it to the relevant invoice line.

This allows you to reduce the deferred revenue and update the revenue recognition schedule according to the new value, instead of continuing to recognize revenue based on the original full amount. Wafeq also re-spreads the remaining amount over the remaining periods and automatically creates the related journal entries.

Example

Suppose you have a sales invoice containing SAR 12,000.00 in deferred revenue, with a revenue recognition schedule set up over 12 months.

The schedule is set up as follows:

• Duration: 12 months
• Start date: 01-06-2026
• End date: 31-05-2027
• Deferred revenue: SAR 10,000.00
• Recognized revenue: SAR 2,000.00

A portion of the revenue is recognized in each period according to the revenue recognition schedule.

For example, the invoice schedule shows:

• Recognized revenue: SAR 2,000.00
• Deferred revenue: SAR 10,000.00

Wafeq continues to recognize revenue and reduce the deferred revenue balance according to the defined schedule.

 

 

 

How to Adjust the Revenue Recognition Schedule Using a Credit Note

If you want to reduce the value of the sales invoice, you can create a credit note and link it to the invoice line that contains the revenue recognition schedule.

When creating the credit note:

1. Open the sales invoice that contains the revenue recognition schedule you want to adjust.
2. From the invoice page, click the arrow next to "Apply credit note".
3. Select "Create revenue recognition credit note".

 

The Credit Note screen will open. Enter the required details, such as the Credit Note number, Customer, Currency, and Date.

 

Once the credit note is approved and posted, Wafeq automatically updates the revenue recognition schedule.

The system will:

• Reduce the remaining deferred revenue balance by the credit note amount.
• Update the revenue recognition schedule to reflect the new value.
• Re-spread the remaining balance over the remaining periods.
• Automatically create the journal entries related to the adjustment.

Reviewing the Revenue Recognition Schedule After Applying the Credit Note

After applying the credit note, open the original sales invoice and go to the "Revenue Recognition" tab.

The updated revenue recognition schedule will be displayed, allowing you to review the impact of the credit note on the remaining periods.

You can review:

• Revenue amount for each period.
• Remaining deferred revenue balance.
• Posting date for each period.
• Remaining periods in the revenue recognition schedule.
• Reduction amount resulting from the credit note.

This keeps the revenue recognition schedule aligned with the updated revenue value without requiring you to manually adjust the remaining periods.