Deferrals let you distribute the financial impact of a transaction across multiple accounting periods. A common example is a 12-month software subscription invoiced in January, the full cost hits in January, but the expense should be recognized monthly throughout the year. Business Central handles this by posting the original amount to a deferral account and then releasing a portion to the expense account each period.
Deferrals work on both the purchase and sales sides. Use them for prepaid expenses, subscription-based revenue, insurance premiums, and similar items.
Set Up a Deferral Template
A deferral template defines how amounts are spread across periods. You can create as many templates as needed.
- Search for Deferral Templates using
Alt + Q. - Select New.
- Fill in the following fields:
| Field | Description |
|---|---|
| Deferral Code | A short identifier (e.g. PREPAID-12M) |
| Description | Descriptive name (e.g. Prepaid, 12 Months Straight-Line) |
| Deferral Account | The balance sheet account used to temporarily hold the deferred amount |
| Deferral Method | Controls how the amount is distributed (see below) |
| Start Date | When deferral recognition begins (e.g. Posting Date, Start of Next Period) |
| No. of Periods | The number of periods over which the amount is spread |
Deferral Methods
| Method | Behavior |
|---|---|
| Straight-Line | Distributes an equal amount each period based on the number of days in each period relative to the total days |
| Equal per Period | Posts exactly the same amount each period, regardless of period length |
| Days per Period | Distributes proportionally based on the number of days in each period |
| User-Defined | Lets you specify the amount or percentage for each period manually |
Equal per Period is the simplest choice for subscriptions with a known fixed monthly cost. Straight-Line is more precise for periods of unequal length.
Assign a Deferral Template to a G/L Account or Item
You can attach a deferral template directly to a G/L account or an item so it applies automatically whenever that account or item is used on a document.
For a G/L Account:
- Search for Chart of Accounts using
Alt + Q. - Open the G/L account (e.g. 6310, Software Subscriptions).
- Set the Default Deferral Template Code field to your template.
For an Item:
- Open the Item Card for the relevant item.
- On the Invoicing tab, set the Default Deferral Template Code.
When this account or item appears on a purchase or sales line, the deferral template is suggested automatically.
Apply a Deferral on a Purchase or Sales Line
You can also assign a deferral template directly on a document line, without configuring a default on the account or item.
- Open a purchase invoice (or sales invoice, credit memo, etc.).
- Enter a line with the relevant G/L account or item.
- On the line, locate the Deferral Code field. If it is not visible, use Choose Columns to add it.
- Enter or select the deferral template code.
Review the Deferral Schedule
Before posting, you can inspect how the amount will be spread.
- On the document line with a deferral code applied, select Deferral Schedule from the line’s action menu (or the Line menu on the ribbon).
- The Deferral Schedule page shows each period, the date, and the amount that will be posted to the expense or revenue account in that period.
- If the distribution looks incorrect, adjust the Deferral Code or the Start Date before proceeding.
If you are using the User-Defined method, you can edit the amount or percentage for each period directly on this page.
Post the Document
Post the invoice as normal with F9 or the Post action. Business Central:
- Posts the full invoice amount to the deferral account (not the expense or revenue account).
- Creates scheduled G/L entries that release the appropriate amount from the deferral account to the target account on each period’s posting date.
You can review the deferral entries by searching for General Ledger Entries and filtering by the deferral account number.
For assets that lose value over time rather than being expensed immediately, see How to Set Up Fixed Assets in Business Central.