Let’s look at two examples to illustrate how deferred revenue for a subscription is impacted by invoicing differences and how these differences impact a subscription-based company's bookkeeping/income statements:
Example subscription #1
A one-year $12,000 subscription has an order date of April 1, 2024, a subscription start date and revenue start date of April 15, 2024, and a subscription end date and revenue end date of April 14, 2025. The subscription is invoiced on the subscription start date of April 15, 2024.
In this image, there is an invoicing schedule with one record and a revenue recognition schedule with a record for each month of revenue recognition over the term. In use is the proper daily amortization schedule following generally accepted accounting principles (GAAP).
Period Revenue is the revenue schedule by month, Note that April 2014 is approximately 1/2 the other months because the start date is April 15.
Recognized revenue as of the end period is the rolling total of revenue recognized as of the end of that month.
“Deferred revenue balance as of the end of the period” is the last column. This displays the value as of the last day of the month. If the schedule were shown in daily records, the deferred revenue balance would be $12,000 as of April 15 and would decline by an equal amount until April 30, where the balance would be $11,473.97, the first row in the revenue schedule table below.
Example subscription #2
In this example, the only change is that the invoicing is quarterly over the term. The value and dates of the subscription are identical. A one-year $12,000 subscription has an order date of April 1, 2014, a subscription start date and revenue start date of April 15, 2014, and a subscription end date and revenue end date of April 14, 2015.
In the revenue schedule table, the values in columns 1, 2, and 3 are identical to that in Example 1 above. The last column, “deferred balance as of the end period,” is different. Here you can clearly see the impact of invoicing on deferred revenue. Notice how the value at the end of the period bounces up and down, with peaks in the months where there is an invoice.