The Revenue Recognition Schedule serves as a comprehensive summary outlining how revenue is recognized for each individual product included in the contract. It details the method and timing of revenue recognition, ensuring that financial reporting aligns with the agreed terms. This schedule provides transparency in how revenue is distributed over the life of the contract. The focus of this topic is on the Report section of the contract, where the Revenue Schedule is documented.
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Revenue Recognition Schedule
From the TrueRev dashboard, go to the Contracts tab. Select a contract and open it.
Once the contract is open, go to the Revenue tab.
The Revenue Schedule is where you configure how revenue will be recognized for each product within the contract. Please note that the Revenue Start and End Dates affect only the Revenue Schedule Report—they do not impact MRR/SaaS metrics or the Booking Report dates.
You will see in the Report section those products for which you have setup the revenue schedule. This section displays three rows: Revenue, Deferred, and Unbilled Totals.
Revenue totals represent the revenue recognized during the month. This is calculated based on the product cost allocated over the revenue start and end dates.
Deferred totals show the portion of revenue that has been billed but not yet earned, as the subscription period is still ongoing. Each month, as the customer uses the product, a portion of this revenue is recognized as earned. This process continues monthly until the full amount is recognized, reducing the deferred revenue balance to zero for that contract.
Unbilled totals refer to revenue that a company has already earned as the subscription period is utilized, but for which an invoice has not yet been issued to the customer. This amount accumulates as the service is delivered without billing and is cleared once the invoice is generated.
Let's look at how the revenue, deferred revenue, and unbilled revenue work with these examples:
Scenario 1: Annual Subscription Paid All At Once
In this contract, you sold a 1-year subscription for $12,000 on January 1 to a customer, with immediate service start and an upfront invoice for the full amount.
On January 31, the revenue for the initial month of January, amounting to $1,000 has already been recognized, your deferred revenue balance is $11,000 representing the remaining 11 months not yet utilized and earned.
By February 28, after recognizing $1,000 in earned revenue for February’s service, the deferred revenue balance decreases to $10,000.
There is no unbilled revenue as the full contract amount was already invoiced on January 1
Scenario 2: Annual Subscription Billed Quarterly
Now, consider selling a customer a 1-year subscription for $12,000 on January 1, where the service starts immediately, but you bill quarterly. You invoice them $3,000 for the first quarter upfront.
On January 31, $1,000 is recognized as revenue, and the deferred revenue is $2,000, representing the unearned portion of the first quarter's invoice.
By February 28, after recognizing $1,000 of earned revenue for January's service, your deferred revenue decreases to $1,000.
On March 31, the deferred revenue balance is zero, as the quarterly invoice has been fully amortized.
There was no unbilled amount in January-March as the invoice for the first quarter billing period was already issued on January 1.
Let’s say that you missed invoicing the second quarter subscription, or if, for any reason, the invoice was not generated and sent to the customer on April 1. The amount of $1,000 is recognized as monthly revenue on April 30. Deferred revenue is zero since the invoice for the second quarter was not yet billed or issued to the customer, and unbilled revenue is $1,000, reflecting the revenue earned for the month.
Assuming that the invoice for the second quarter subscription was issued on April 30, let us see how the three amounts are affected once the invoice is associated to the contract.
Using the same contract, go to the Billing tab. Search for the invoice, open it. Select existing product to which it is to be associated. Click the “Associate” button, then “Done”.
Navigate to the Revenue tab, go to the Report section. Check that the deferred revenue on April 30 becomes $2,000, representing the unearned portion of the second quarter's invoice, and the unbilled amount becomes zero.