Accurate revenue recognition is a timing exercise tied to subscription products and contract durations. Companies require correct revenue recognition for compliance with investors, lenders, and regulatory requirements, especially for potential public offerings.
Why would revenue be recognized differently?
- Cash basis: Revenue is reported upon cash receipt, regardless of when it's earned.
- Accrual basis: Revenue is reported when earned, regardless of cash receipt.
Learn more about Accrual Basis versus Cash Basis Accounting for Startups > here.
Managing both cash-basis and accrual-basis accounting methods is labor-intensive.
That’s where Puzzle <> Stripe's automated revenue recognition simplifies everything.
Puzzle <> Stripe combines cash and accrual methods, removing extra work and manual tasks.
How it works
- Puzzle captures the service duration for Stripe subscriptions through the Stripe integration.
- Puzzle automatically calculates a revenue recognition schedule for each subscription in Stripe based on each subscription's start date and end date, based on 360 days.
- Puzzle uses a 30/360 convention to automatically calculate the pro-rated amount of revenue to be recognized in any given period, with a prorated first month.
- Puzzle records the invoice.
- Each month, Puzzle automatically recognizes the accurate amount of accrued revenue and reduces the accurate amount of deferred revenue for each subscription.
- Puzzle also applies the cash payment received to reduce the Stripe receivable on the balance sheet. Simultaneously, this cash movement creates cash-based revenue.