Revenue Recognition

What is revenue recognition?

Revenue recognition is an accounting principle where revenue is recognized and realized over the period the product or service is provided, not when initial payment is received.

Accurate revenue recognition is an integral component of any business and most GAAP's recommend following this methodology for better reporting as it lets you gain a greater, more precise understanding of your company finances.

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Caution

Please note that accounting practices differ across varying organizations and industries. The details of our accounting reports are shared as suggestions. We recommend you speak to your accounting advisor about this report before using it.

For example, let's say:

A customer subscribes to a Monthly plan on Jan 1st, 2021
Service is rendered for the month of Jan
Subscription is renewed monthly on the 1st of Feb, and a recurring fee will be paid monthly going forward.

Since the service is fully provided in Jan, the revenue is completely recognized in Jan

A customer subscribes for a Quarterly plan on Jan 1st, 2021
The initial revenue received is $90
No additional revenue is received for the 2nd and 3rd months however, service must still be rendered for the 2nd and 3rd months

Since there is still a liability to provide service to the customer for the rest of the subscription period, the $90 cannot be entirely recognized in the first month. The revenue is recognized over the three months as the service is provided.

Hence the revenue recognized over the remaining period the service is provided must be recorded as revenue on the income report.

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Warning

Our revenue recognition and deferred revenue reports only recognize revenue from 15th June 2021 onwards.
Past revenue will not be recognized

Revenue Recognition Report

The revenue recognition report shows the sum total of all of the revenue recognized across all invoices and credit notes by plan and month. You can find this by heading to > Reports > Accounting > Revenue Recognition

  • Calculations for revenue recognition are made and updated when an invoice is marked as paid or paid offline

    • Set-up fees and allowances, the revenue must be recognized immediately when the invoice is marked as paid or paid offline

    • All revenue generated from positive one-time charges must be recognized immediately when the invoice is marked as paid

    • If a subscription is created in the mid of the month, the prorated time period will be calculated for determining the revenue to be recognized

    • Discounts and account credits are recognized by removing from the subscription and/or add-on elements first, then the calculations are done using the discounted figures.

    • Credit notes are recognized if they are issued during the performance period and the recognized revenue is adjusted accordingly.

    • If a credit note is issued at end of the performance period, the refund will not affect the previously recognized revenue.

    • Credit notes issued against one time charges are not recognized

    • You can select a time period to generate the report

    • You can filter the report by product, plan, subscription, invoice, or credit note.

    • You can download the report in a .csv format.

Deferred Revenue Report

Our Deferred Revenue Report calculates the pending revenue to be recognized for the rest of the subscription period. To find this, navigate to > Reports > Accounting > Deferred Revenue

For example, let's go back to the customer who subscribes to the $90 Quarterly plan on Jan 1st, 2021.
$30 of revenue would be recognized when the service is provided, and the remaining revenue to be recognized is $60 across the rest of the subscription period

  • Calculations for revenue recognition are made and updated when an invoice is marked as paid or paid offline

    • Tax is not taken into account when calculating deferred revenue

    • You can select a time period to generate the report

    • You can filter the report by product, plan, subscription, invoice, or credit note.

    • You can download the report in a .csv format.

FAQs

What happens when a customer cancels a subscription without a refund?

When a customer cancels their subscription and is not offered a refund, their remaining deferred
revenue is recognized in the month they cancel

How are minimum term invoices that are generated as a part of the dunning flow recognized?

When a minimum term invoice is raised as part of the dunning flow, the original invoice that puts the customer in the dunning flow is written off and the value of that invoice is added to the minimum term invoice. If the minimum term invoice gets paid, the value on the invoice relating to the minimum term payment is recognized immediately. This is because the minimum term service charge (early termination) is performed immediately, meaning there is no performance period. The amount relating to the service that was invoiced and previously unpaid would however be recognized across its entire performance period.

If the customer was subscribed to a yearly cycle, it would be recognized across the year, unless the subscription is canceled as part of the dunning flow

Will my past revenue be recognized?

No, our revenue recognition and deferred revenue reports only recognize revenue from 15th June 2021 onwards. Past revenue will not be recognized.


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