Recognise revenue as it is earned

How to do it

IFRS 15 and its US twin, ASC 606, count revenue when the promised service is delivered, not when the money arrives. Subscription service is delivered over time, so a 1,200 EUR annual plan paid in January earns about 100 EUR a month. Accounts that count the 1,200 EUR at once overstate revenue, and the statutory accounts built on them are wrong. Run a daily or monthly job that posts the earned share from deferred revenue to revenue. It writes journal entries as in Book every money movement as balanced double-entry postings. A refund or plan change posts the remaining deferred amount back out. Bundles of setup fees, licences and support may need splitting into separate obligations. Let your accountant decide that split and record it per price.

Examples

TypeScript example

const DAY_MS = 24 * 60 * 60 * 1000

export function earnedMinor(totalMinor: number, start: Date, end: Date, asOf: Date): number {
  const totalDays = Math.round((end.getTime() - start.getTime()) / DAY_MS)
  const daysServed = Math.min(totalDays, Math.max(0, Math.floor((asOf.getTime() - start.getTime()) / DAY_MS)))
  return Math.floor((totalMinor * daysServed) / totalDays)
}

Python example

from datetime import date

def earned_minor(total_minor: int, start: date, end: date, as_of: date) -> int:
    total_days = (end - start).days
    days_served = min(total_days, max(0, (as_of - start).days))
    return total_minor * days_served // total_days

How to check

A test sells a 1,200 EUR annual plan on 1 January. On 1 April, after 90 of 365 days, the ledger shows 295.89 EUR revenue and 904.11 EUR deferred revenue. A refund that day leaves 295.89 EUR revenue and zero deferred revenue for that plan.

Sources

• IFRS 15 Revenue from Contracts with Customers

Related rules

• PRC-13 Bill committed-use contracts against the commitment and true up at term end in Pricing, plans and entitlements
• PRC-18 Book every money movement as balanced double-entry postings in Pricing, plans and entitlements