A client prepaid for a package of sessions. Is that income now?
The money in your bank account is not automatically income on your books. When a client pays upfront for a package of sessions, that payment is a liability until you deliver the sessions.
Think about what you owe the client. If they paid $1,200 for six sessions and you’ve delivered zero, you owe them six sessions or a refund. That obligation shows up in your books as deferred revenue or unearned revenue. It sits as a liability on your balance sheet, not revenue on your income statement.
As you deliver each session, you recognize a portion as income. After the first session, you move $200 from the liability to revenue. After the second, another $200. This continues until all sessions are delivered and the full amount has moved from liability to income.
This isn’t an optional accounting choice. It’s how accurate books work. Booking the entire $1,200 as income on day one creates several problems. Your profit looks higher than it actually is. You’ll pay taxes on money you haven’t really earned yet. Your books hide the fact that you still owe services to that client. If the client asks for a refund, your financials will show a loss when really you’re just returning unearned money.
This issue shows up constantly in medical businesses. Med spas sell treatment packages and monthly memberships. Therapy practices bundle sessions at a discount. Home care agencies collect deposits for care hours. A CPA who works with medical businesses sees this situation regularly and knows how to set up your chart of accounts correctly from the start.
Your books should always show the outstanding balance you owe to clients in prepaid services. This gives you an accurate picture of what you’ve actually earned versus what you still need to deliver. It also keeps your tax liability aligned with income you’ve genuinely recognized.
If your current bookkeeping dumps prepaid packages straight into revenue, that’s a problem worth fixing. Monthly full-service bookkeeping ensures deferred revenue is tracked properly and income gets recognized correctly as sessions are delivered.
If you’re not sure how prepaid packages are flowing through your books, let’s take a look together. Book a consultation and we can review how your revenue is being recorded.
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