You’ve just landed a huge contract and added tens of thousands of dollars to your income! You’ll want to update your accounts immediately to reflect your revenue bonanza.
Not so fast.
Revenue can only be recognized after the product is delivered. In the case of a subscription, after the product is used. You can’t count the income until you’ve earned it. When you invoice a customer in advance for an annual premium, you have the cash in hand, but you can only claim it as revenue upon delivery of the service.
TekStack handles this accounting conundrum seamlessly. When your customer purchases an annual subscription and pays you in advance, it’s deferred revenue.
Why is this important?
- You don’t have to do the work of figuring out what the pro-rated revenue is, or how revenue is received over the subscription life.
- The revenue information can easily be transmitted to your accounting system.
Looking at your revenue on the Invoice Line in the image below, you will see how your revenue is generated.
In this example, the billing for the annual subscription started on February 10 and will expire on February 9 the following year. Though it’s invoiced monthly, it takes into consideration February 10 to 28, pro-rating the amount. Monthly Invoices continue until February of the following year when only nine days can be invoiced.
Here you can see that the revenue is split in the first and last month of the subscription. Pricing is adjusted, or pro-rated, for days of month that subscription is not used.