Article · ~15 min read

Guide to SaaS Revenue Recognition and Deferred Revenue in SaaS

Ben Murray · The SaaS CFO Free Beginner

This is written by a working SaaS CFO (Ben Murray, CPA), so it explains deferred revenue and accrual recognition in the exact terms your future accountant and investors will use. It walks through a $12,000 annual contract becoming $1,000 of recognized revenue per month, the clearest way to see why cash in the bank is not the same as revenue earned. Treat it as a starting point, then decide with your accountant when you actually need to switch your books over.

  • A prepaid annual subscription sits on the balance sheet as deferred revenue (a liability) and gets recognized month by month as you deliver the service.
  • Cash received and recognized revenue can look very different, which is why the distinction matters once you report numbers to anyone.
  • ASC 606 and IFRS 15 give a five-step framework, but the intuition (recognize as you deliver) is what a starting SaaS founder needs first.
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The question it answers

  1. Do I need to understand accrual accounting and things like deferred revenue, or is cash-basis enough for a SaaS just starting out?

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