Revenue recognition is an accounting methodology which helps determining the revenue to be recognized over the period of time the service is consumed.
Most SaaS companies recognize revenue over a period of time when the services are rendered or earned. Though payments are collected upfront to sell subscription plans, the revenue is reflected as recognized only when the service is rendered. Most GAAPs across the globe recommend following this principle for better reporting.
Let's say a customer subscribes to a Monthly plan, on Jan 1, 2017
On the other hand, when a customer signs up for a Quarterly ($299) plan, Jan 1, 2017
Since there is a liability to serve the customer(s) for the rest of the subscription period, the revenue cannot be entirely recognized in the first month when the payment is received.
Hence, the revenue needs to be recorded as a liability on the balance sheet and should be recognized as the service is delivered over time and recognized as revenue on the income statement.
Caution: Accounting practices vary across different organisations and across different industry verticals. The details are shared as recommendations. Please speak to your accounting advisor before processing your books.
The Revenue Recognition Report provides the actual amount to be recognized for each month. This report will also show the projected revenue for the upcoming months.
Let's assume an Annual Subscription is sold for $365 on Jan 1, 2017
An invoice for $365 is created for the period Jan 1, 2017 to Dec 31, 2017
The Deferred Revenue Report calculates the pending revenue to be recognized for the rest of the subscription period.
Let's assume an Annual Subscription is sold for $365 on Jan 1, 2017.
An invoice for $365 is created for the period Jan 1, 2017 to Dec 31, 2017.
The Account Summary Report is a monthly report of your sales, discounts, bad debts, and reversals, that can be used for accounting purposes.
If you are processing large number of invoices and do not want to sync each and every invoice to accounting systems (or via Xero or QuickBooks Online integration), you can refer the Account Summary Report and update the summarized amounts manually.
|Sales & Sales Reversals||Sale amount from all invoices and credit notes|
|Discounts & Discount Reversals||Discounts provided on purchases & Discounts reversed due to cancellations/refunds/voids etc|
|Taxes & Tax Reversals||Taxes collected on subscription & Taxes reversed due to cancellations/refunds/voids etc|
|Bad Debt & Bad Debt Reversals||Payment due invoices written off and bad debts incurred & Bad debt reversals|
|Payments & Refunds||Payments received & Payments refunded|
|Revenue Reversal||Recognised revenue to be reversed due to cancellations/refunds/voids|
|Revenue Recognized||Total revenue recognized for the month,|
|Defered revenue||Defered revenue at the end of the month|
|Aging Balance||Total aging balance (unpaid customer invoices and unused credits) at the end of the month.|
If you are operating in multiple currencies, then Chargebee will display the details in the base currency and the currency in which the invoice was processed.
Assume, you are operating in USD, EUR, SGD, base currency set in your Chargebee site is EUR, and you have processed invoices in all the currencies:
|Customer 1 makes a purchase||Invoice 001 raised in USD|
|Customer 2 makes a purchase||Invoice 002 raised in EUR|
|Customer 3 makes a purchase||Invoice 003 raised in SGD Invoice 004 raised in SGD|
When the reports are loaded, the amount will be calculated and displayed in base currency by default, (in this case, EUR). Read more about how exchange rate conversion works in Chargebee.
You can choose a different currency to view details of invoices raised in additional currencies
I've already recognized revenue for a particular period manually, how can I move to the recognition process in Chargebee going forward?
You can provide data about the revenue you have recognized already and we will assist with migrating the data into Chargebee.
Chargebee will consider the data uploaded and calculate the amount to be recognized for the upcoming months.
If there is a change in the amount to be recognized, the difference (+/-) will be balanced in the current month for which revenue should be recognised. Contact firstname.lastname@example.org if you want to upload amounts which are already recognized.
How should I use the Revenue Recognition report to update the books?
You may have setup Revenue and Liability accounts based on products/plans or a single account for tracking all the revenue.
In case you have setup GL Accounts per product, then you may setup Liability and Revenue Accounts and recognize revenue on a monthly basis
Refer the Revenue Recognition Report for the amount to be transferred from Liability account to Revenue account.
If you are operating with different Revenue/Liability Accounts for tracking Annual, Quarterly, Monthly Plan sales, you can refer the Revenue Recognition Report (search by product or invoice) and refer the amount to be recognized on a monthly basis.
I'm already using Chargebee's Xero/QuickBooks Online integration feature. How should I utilise this report?
If you are using Chargebee's integration with Xero or QuickBooks Online, here are the recommended steps to manage deferred revenue in your accounting system.
If you have provided different Chart of Accounts for each product:
If you have provided the same Sales Account for all products, in this case,
You can create different Sales Accounts for each product in the Accounting system
You should then provide the Accounting code of the Liability account for plans whose billing frequency is greater than a month, read about how to update the Accounting name or code per product/plan
If you have integrated your Chargebee account with Xero/ QuickBooks Online, Chargebee will sync the data to the respective accounts, based on the GL Account provided in the product setup
Next, refer the Revenue Recognition / Deferred Revenue Report and transfer the amount from Liability to the respective Revenue accounts