How to record deferred revenue in Xero (with journal examples)
Invoiced up front but haven't delivered yet? Here's how to record deferred revenue in Xero and recognise it correctly, month by month.
This walkthrough shows how to record deferred revenue in Xero using a dedicated current liability account and monthly manual journals, with a £12,000 subscription used as a worked example. It helps UK bookkeepers and finance teams recognise income correctly across accounting periods without overstating revenue.
Deferred revenue (or deferred income) is money you've invoiced or been paid for but haven't yet earned. Until you deliver the service, it isn't revenue — it's a liability you owe the customer. Recognising it too early overstates your income and distorts every month that follows.
When deferred revenue applies
- Annual subscriptions or retainers billed up front
- Support or maintenance contracts covering a future period
- Deposits and advance payments for work not yet done
The journals in Xero
Say you invoice a customer £12,000 on 1 January for a 12‑month subscription.
- On invoicing, post the sale to a deferred income (balance sheet) liability account rather than straight to sales — for example
2300 Deferred income. - Each month, release one‑twelfth into revenue:
- Debit
2300 Deferred income£1,000 - Credit
Sales£1,000
- Debit
- Repeat for 12 months. By December the liability is £0 and the full £12,000 has been recognised evenly.
| Month | Recognised | Deferred balance |
|---|---|---|
| Jan | £1,000 | £11,000 |
| Feb | £1,000 | £10,000 |
| … | £1,000 | … |
| Dec | £1,000 | £0 |
Getting recognition right
Recognise revenue as the customer receives the benefit — usually evenly over the contract, but sometimes on delivery of milestones. Whatever the basis, the deferred balance in Xero should always tie back to the value of work still to be delivered.
The faster way
Posting these releases by hand across dozens of contracts is where mistakes creep in. WorkWithLottie reads everything posted to your deferred income codes, builds the recognition schedule automatically, posts (or holds) the monthly journals, and reconciles the balance back to Xero.
Related: What is deferred income? · Deferred income & revenue recognition explained
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ReadLet Lottie handle this for you
Automate accruals, prepayments and deferred income on top of Xero. Start your free 7-day trial.
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