Revenue Recognition Calculator
The monthly recognition schedule for a subscription against the cash that arrives on a different timetable, with the deferred balance that sits between them.
Contract value $27,000.00
subscription $24,000.00
setup fee $3,000.00
Term 12 months
Billing all upfront
Setup fee treated as part of the subscription, spread across the term
Revenue a month $2,250.00
Month 1 revenue $2,250.00
Month 1 cash $27,000.00
the gap $24,750.00, which is deferred revenue and a liability
The schedule
month 1 revenue $2,250.00 · cash $27,000.00 · deferred $24,750.00
month 2 revenue $2,250.00 · cash $0.00 · deferred $22,500.00
month 3 revenue $2,250.00 · cash $0.00 · deferred $20,250.00
month 6 revenue $2,250.00 · cash $0.00 · deferred $13,500.00
month 9 revenue $2,250.00 · cash $0.00 · deferred $6,750.00
month 12 revenue $2,250.00 · cash $0.00 · deferred $0.00
Over the whole term
revenue recognised $27,000.00
cash collected $27,000.00
deferred at the end $0.00
highest deferred balance $24,750.00, in month 1
The three numbers people mix up
bookings $27,000.00, what was signed
cash in month 1 $27,000.00, what arrived
revenue in month 1 $2,250.00, what was earned
annual recurring revenue $24,000.00, a run rate rather than an accounting figure
Month one takes $27,000.00 of cash and $2,250.00 of revenue. The
$24,750.00 difference is deferred revenue: a liability, because you owe
the customer the rest of the service. Counting it as income makes the
selling month look excellent and every month after it look poor.
Bookings, cash and revenue are three different numbers and a board pack
that uses them interchangeably is describing three different companies.
Bookings are what was signed, cash is what arrived, revenue is what has
been earned by delivering.
Spreading the setup fee across the term is right when it is not
distinct: a charge for getting started with a service the customer
cannot use separately. That is the more common case, and it is the one
auditors ask about.
Annual recurring revenue is not a GAAP figure. It is a run rate: the
monthly subscription times twelve, useful for talking about scale and
unusable in accounts. A company reporting ARR as revenue is reporting
something its accountant did not sign.
Deferred revenue is a liability and a good sign. A large deferred
balance means customers have paid ahead, which is free working capital,
and it also means a chunk of next year's revenue is already funded. The
cash is real; the income is not yet.
A mid-term cancellation with a refund reverses the unearned part. That
is why the deferred balance matters operationally rather than only in
the accounts: it is roughly what you would owe back if everyone left
tomorrow.
Usage-based pricing recognises differently again: revenue follows
consumption rather than time, so a flat monthly schedule is wrong for
it. Any contract with tiers, overages or minimum commitments needs its
own reading of the obligations.
This is arithmetic on a simple subscription, not accounting advice.
Contract modifications, variable consideration, financing components and
multi-element arrangements all have their own treatment, and the
threshold for needing an accountant is lower than most founders assume.
Output is valid and updates as you type.
Fix the highlighted fields to update the output.
An annual contract billed upfront: $27,000 lands in the bank in month one. Revenue for that month is $2,250.
The other $24,750 is deferred revenue, which sits on the balance sheet as a liability, because you owe the customer eleven more months of service. Treating it as income makes the selling month look excellent and every month afterwards look poor, and it is the commonest small-company accounting mistake there is.
Under ASC 606 and IFRS 15, revenue is recognised as the performance obligation is satisfied. For a subscription, that means month by month, regardless of when the money arrived.
How to use
- Put in the subscription value for the whole term and the term length.
- Put the setup fee in its own field, and decide whether it is a separate obligation.
- Set the billing timetable, which changes the cash and the deferred balance and nothing about the revenue.
Example
A twelve-month, $24,000 contract with a $3,000 setup fee, billed upfront:
Revenue a month $2,250.00
Month 1 revenue $2,250.00
Month 1 cash $27,000.00
the gap $24,750.00, which is deferred revenue and a liability
The schedule
month 1 revenue $2,250.00 · cash $27,000.00 · deferred $24,750.00
month 2 revenue $2,250.00 · cash $0.00 · deferred $22,500.00
month 12 revenue $2,250.00 · cash $0.00 · deferred $0.00
The three numbers people mix up
bookings $27,000.00, what was signed
cash in month 1 $27,000.00, what arrived
revenue in month 1 $2,250.00, what was earned
annual recurring revenue $24,000.00, a run rate rather than an accounting figurePitfalls
Bookings, cash and revenue are three numbers. A board pack that uses them interchangeably is describing three different companies. Say which one every figure is.
ARR is not revenue. It is a run rate: the monthly subscription times twelve. Useful for talking about scale, unusable in accounts, and a company presenting it as revenue is presenting something its accountant did not sign.
Deferred revenue is a liability and a good sign. Customers have paid ahead, which is free working capital and means part of next year is already funded. The cash is real; the income is not yet.
The setup fee is a judgement, not a formula. If the customer receives something distinct, a migration, a training course, a configured integration, it is a separate obligation and is recognised when delivered. If it is a charge for getting started with a service they cannot use separately, it is not distinct and it spreads across the term. Auditors ask about this one.
A mid-term cancellation reverses the unearned part. That is why the deferred balance matters operationally as well as in the accounts: it is roughly what you would owe back if everybody left tomorrow.
Usage-based pricing does not recognise on a straight line. Revenue follows consumption, so a flat monthly schedule is wrong for it. Tiers, overages and minimum commitments each need their own reading.
Annual billing flatters cash flow, not revenue. Offering a discount for paying yearly buys working capital at a known price. It does not change revenue at all, which is worth being clear about before somebody celebrates the month.
Compatibility
Arithmetic in the browser: nothing is uploaded and nothing is stored.
The schedule recognises the subscription evenly across the term, which is the straight-line method appropriate to a service delivered continuously. Cash follows the billing choice: all upfront, monthly, quarterly or annually in advance, with a final part-period billed for what is left rather than a whole period.
The deferred balance is cash collected less revenue recognised, and the test suite asserts that identity in every month under every billing option, and that the whole contract is recognised by the end of the term.
What this does not do: contract modifications, variable consideration, significant financing components, multi-element arrangements with distinct products, or the practical expedients. Those are where ASC 606 gets genuinely difficult, and the threshold for needing an accountant is lower than most founders assume.