diff --git a/CRM/Contribute/BAO/Contribution.php b/CRM/Contribute/BAO/Contribution.php
index a6c6c0b4515a..092e8875e822 100644
--- a/CRM/Contribute/BAO/Contribution.php
+++ b/CRM/Contribute/BAO/Contribution.php
@@ -177,6 +177,9 @@ public static function add(&$params, $ids = array()) {
       $params['prevContribution'] = self::getValues(array('id' => $contributionID), CRM_Core_DAO::$_nullArray, CRM_Core_DAO::$_nullArray);
     }
 
+    // CRM-16189
+    CRM_Financial_BAO_FinancialAccount::checkFinancialTypeHasDeferred($params, $contributionID);
+
     if ($contributionID) {
       CRM_Utils_Hook::pre('edit', 'Contribution', $contributionID, $params);
     }
diff --git a/CRM/Contribute/Form/Contribution.php b/CRM/Contribute/Form/Contribution.php
index 318b7f229076..7d65913dd792 100644
--- a/CRM/Contribute/Form/Contribution.php
+++ b/CRM/Contribute/Form/Contribution.php
@@ -1008,6 +1008,14 @@ public static function formRule($fields, $files, $self) {
     ) {
       $errors['revenue_recognition_date'] = ts('Month and Year are required field for Revenue Recognition.');
     }
+    // CRM-16189
+    try {
+      CRM_Financial_BAO_FinancialAccount::checkFinancialTypeHasDeferred($fields, $self->_id, $self->_priceSet['fields']);
+    }
+    catch (CRM_Core_Exception $e) {
+      $errors['financial_type_id'] = ' ';
+      $errors['_qf_default'] = $e->getMessage();
+    }
     $errors = array_merge($errors, $softErrors);
     return $errors;
   }
diff --git a/CRM/Financial/BAO/FinancialAccount.php b/CRM/Financial/BAO/FinancialAccount.php
index f3aecbf4d08c..aea07d410fd5 100644
--- a/CRM/Financial/BAO/FinancialAccount.php
+++ b/CRM/Financial/BAO/FinancialAccount.php
@@ -358,29 +358,31 @@ public static function validateFinancialAccount($financialAccountId, $financialA
 
   /**
    * Validate Financial Type has Deferred Revenue account relationship
-   * with Financial Account
+   * with Financial Account.
    *
    * @param array $params
+   *   Holds submitted formvalues and params from api for updating/adding contribution.
    *
    * @param int $contributionID
+   *   Contribution ID
    *
-   * @param obj $form
+   * @param array $priceSetFields
+   *   Array of price fields of a price set.
    *
-   * @return string
+   * @return bool
    *
    */
-  public static function checkFinancialTypeHasDeferred($params, $contributionID = NULL, $form = NULL) {
+  public static function checkFinancialTypeHasDeferred($params, $contributionID = NULL, $priceSetFields = NULL) {
     if (!CRM_Contribute_BAO_Contribution::checkContributeSettings('deferred_revenue_enabled')) {
       return FALSE;
     }
     $recognitionDate = CRM_Utils_Array::value('revenue_recognition_date', $params);
     if (!(!CRM_Utils_System::isNull($recognitionDate)
-      || ($contributionID && $params['prevContribution']->revenue_recognition_date))
+      || ($contributionID && !CRM_Utils_System::isNull($params['prevContribution']->revenue_recognition_date)))
     ) {
       return FALSE;
     }
 
-    $message = ts('Revenue recognition date can only be specified if the financial type selected has a deferred revenue account configured. Please have an administrator set up the deferred revenue account at Administer > CiviContribute > Financial Accounts, then configure it for financial types at Administer > CiviContribution > Financial Types, Accounts');
     $lineItems = CRM_Utils_Array::value('line_item', $params);
     $financialTypeID = CRM_Utils_Array::value('financial_type_id', $params);
     if (!$financialTypeID) {
@@ -388,7 +390,7 @@ public static function checkFinancialTypeHasDeferred($params, $contributionID =
     }
     if (($contributionID || !empty($params['price_set_id'])) && empty($lineItems)) {
       if (!$contributionID) {
-        CRM_Price_BAO_PriceSet::processAmount($form->_priceSet['fields'],
+        CRM_Price_BAO_PriceSet::processAmount($priceSetFields,
         $params, $items);
       }
       else {
@@ -399,19 +401,25 @@ public static function checkFinancialTypeHasDeferred($params, $contributionID =
       }
     }
     $deferredFinancialType = self::getDeferredFinancialType();
+    $isError = FALSE;
     if (!empty($lineItems)) {
       foreach ($lineItems as $lineItem) {
         foreach ($lineItem as $items) {
           if (!array_key_exists($items['financial_type_id'], $deferredFinancialType)) {
-            return $message;
+            $isError = TRUE;
           }
         }
       }
     }
     elseif (!array_key_exists($financialTypeID, $deferredFinancialType)) {
-      return $message;
+      $isError = TRUE;
     }
-    return FALSE;
+
+    if ($isError) {
+      $error = ts('Revenue recognition date can only be specified if the financial type selected has a deferred revenue account configured. Please have an administrator set up the deferred revenue account at Administer > CiviContribute > Financial Accounts, then configure it for financial types at Administer > CiviContribution > Financial Types, Accounts');
+      throw new CRM_Core_Exception($error);
+    }
+    return $isError;
   }
 
   /**
@@ -419,6 +427,13 @@ public static function checkFinancialTypeHasDeferred($params, $contributionID =
    * with Financial Account.
    *
    * @param int $financialTypeId
+   *   Financial Type Id.
+   *
+   * @param int $entityID
+   *   Holds id for PriceSet/PriceField/PriceFieldValue.
+   *
+   * @param string $entity
+   *   Entity like PriceSet/PriceField/PriceFieldValue.
    *
    * @return bool
    *
diff --git a/tests/phpunit/CRM/Financial/BAO/FinancialAccountTest.php b/tests/phpunit/CRM/Financial/BAO/FinancialAccountTest.php
index 1a987f1e954a..7e228595462e 100644
--- a/tests/phpunit/CRM/Financial/BAO/FinancialAccountTest.php
+++ b/tests/phpunit/CRM/Financial/BAO/FinancialAccountTest.php
@@ -249,9 +249,9 @@ public function testcheckFinancialTypeHasDeferred() {
     $cid = $this->individualCreate();
     $params = array(
       'contact_id' => $cid,
-      'receive_date' => '2010-01-20',
+      'receive_date' => '2016-01-20',
       'total_amount' => 100,
-      'financial_type_id' => 3,
+      'financial_type_id' => 4,
       'revenue_recognition_date' => date('Ymd', strtotime("+1 month")),
       'line_items' => array(
         array(
@@ -264,6 +264,7 @@ public function testcheckFinancialTypeHasDeferred() {
               'qty' => 1,
               'unit_price' => 100,
               'line_total' => 100,
+              'financial_type_id' => 4,
             ),
             array(
               'entity_table' => 'civicrm_contribution',
@@ -273,17 +274,32 @@ public function testcheckFinancialTypeHasDeferred() {
               'qty' => 1,
               'unit_price' => 200,
               'line_total' => 200,
-              'financial_type_id' => 1,
+              'financial_type_id' => 4,
             ),
           ),
-          'params' => array(),
         ),
       ),
     );
-    $contribution = CRM_Contribute_BAO_Contribution::create($params);
-    $valid = CRM_Financial_BAO_FinancialAccount::checkFinancialTypeHasDeferred($params, $contribution->id);
-    $message = "Revenue recognition date can only be specified if the financial type selected has a deferred revenue account configured. Please have an administrator set up the deferred revenue account at Administer > CiviContribute > Financial Accounts, then configure it for financial types at Administer > CiviContribution > Financial Types, Accounts";
-    $this->assertEquals($valid, $message, "The messages do not match");
+    try {
+      CRM_Financial_BAO_FinancialAccount::checkFinancialTypeHasDeferred($params);
+    }
+    catch (CRM_Core_Exception $e) {
+      $this->fail("Missed expected exception");
+    }
+    $params = array(
+      'contact_id' => $cid,
+      'receive_date' => '2016-01-20',
+      'total_amount' => 100,
+      'financial_type_id' => 1,
+      'revenue_recognition_date' => date('Ymd', strtotime("+1 month")),
+    );
+    try {
+      CRM_Financial_BAO_FinancialAccount::checkFinancialTypeHasDeferred($params);
+      $this->fail("Missed expected exception");
+    }
+    catch (CRM_Core_Exception $e) {
+      $this->assertEquals('Revenue recognition date can only be specified if the financial type selected has a deferred revenue account configured. Please have an administrator set up the deferred revenue account at Administer > CiviContribute > Financial Accounts, then configure it for financial types at Administer > CiviContribution > Financial Types, Accounts', $e->getMessage());
+    }
   }
 
   /**