When Revenue Counts as Earned in QuickBooks Online
Cash basis counts revenue when payment lands; accrual counts it when you deliver. Here is how each method works in QuickBooks Online.
One question keeps surfacing among QuickBooks Online users: at what exact moment does a sale become revenue? The short answer depends on the accounting method a company keeps. The longer answer is that the software treats that choice differently than many people expect, and advance payments have to wait somewhere until they are truly earned.
When is revenue considered earned?
Under the cash basis, revenue counts as earned the moment cash arrives. Delivery of the goods or services does not affect the timing at all. A sale paid today and shipped next month is still income today. Smaller businesses often favor this method because it keeps the books simple.
The accrual basis flips the logic. Revenue is earned when the goods or services are actually provided, regardless of when cash lands. The controlling rule, ASC 606-10-25, ties recognition to the satisfaction of performance obligations. Cash collected before delivery cannot be booked as income yet. It must wait in a liability account, called deferred revenue, until the obligation is met.
The same sale, booked two ways
A worked example shows how far apart the two methods can land. A company signs a contract on January 1, 2026 to sell raw materials for $300. The customer pays in full that day. The materials go out on January 12, 2026.
On the cash basis, a single entry settles everything on the payment date:
- Debit Cash, $300
- Credit Revenue, $300
The accrual basis requires two entries. The first, on January 1, holds the money as a liability:
- Debit Cash, $300
- Credit Deferred Revenue, $300
The second, on the January 12 delivery date, converts the liability into income:
- Debit Deferred Revenue, $300
- Credit Revenue, $300
The effect on the bank balance is identical under both methods. The only difference is which reporting period gets to claim the income.
Setting the accounting method in QuickBooks Online
Here is the detail we see trip people up most often. The accounting method is a reporting setting in QuickBooks Online, not a structural choice baked into the ledger.
To set it, open the gear icon and choose Account and Settings. Select Advanced, then Accounting, and pick Cash or Accrual. Save, and the new basis becomes the default for your summary reports.
What the switch actually does is narrower than it sounds. Every invoice, bill, and payment is recorded in full detail regardless of the setting. The method controls how reports summarize those records, and most reports can be run on either basis on demand. Changing it does not rewrite past entries or convert your books.
Recording deferred revenue in QuickBooks Online
Accrual users who accept advance money need a liability account to hold it. To create one, go to Settings, open the Chart of Accounts, and click New. Choose Other Current Liability as the type, and name it Deferred Revenue or Customer Deposits.
Next, wire it into your sales flow. Create a product or service item for prepayments and map it to that liability account. When a customer pays ahead, add the prepayment item to the sales receipt or invoice. The cash reaches the bank, but the amount waits in the liability instead of flowing straight to income.
Delivery is when you relieve the liability. One common route is a credit memo built with the same prepayment item, applied against the final invoice. The alternative is a journal entry that debits Deferred Revenue and credits Revenue for the earned amount.
Subscriptions and projects change the timing
Not every sale resolves in one delivery. The standard describes several recognition patterns:
- Subscriptions: revenue is recognized evenly across the contract period.
- Milestones: revenue is recognized when each milestone is completed.
- Percentage of completion: revenue is recognized as work progresses.
- Completed contract: all revenue is recorded when the job is finished.
These models do not replace the cash and accrual distinction. They govern how accrual income spreads across reporting periods.
The standard behind the answer
ASC 606 supplies the framework behind all of this. Its five steps drive every accrual decision. Identify the contract, then the performance obligations. Determine the transaction price, allocate it across the obligations, and recognize revenue as each one is satisfied.
Larger entities face an extra question. Under ASC 606-10-55-36 through 606-10-55-40, they must decide whether they act as principal or agent in a transaction. The test is control of the good or service before it transfers. The answer determines whether revenue is reported gross or net.
The practical takeaway
Choose your method deliberately, because it decides the period in which income appears. If money can arrive before the work does, build the deferred revenue account before the first prepayment, not after. And remember what QuickBooks Online is really doing when you flip the setting: the basis is a lens on your reports, not a constraint on your entries.