Revenue recognition methodology Beta
Learn how revenue recognition is modeled within Stripe and how it maps to your integration.
Understanding how Stripe generates revenue recognition information enables you to use our tooling more efficiently. It can also help you reconcile financial information between Stripe and any data that you store on your end.
Revenue recognition modeling
The list below outlines the parameters and data that Stripe uses to calculate revenue.
- Only data sent to Stripe is used for reporting. This means that revenue activity tracked outside of Stripe is not represented in revenue recognition reports.
- Timing
- All events are calculated using UTC time.
- Reports are available three days after the end of a month.
- Integration
- You must set taxes and discounts using the default_tax_rates and discount attributes. If you set taxes and discounts as line items instead, Stripe can’t differentiate the values from revenue, which generates inaccurate reports.
- Only exclusive tax rates set in the tax field are processed.
- Accounting assumptions
- Revenue is recognized by the millisecond and is used to calculate a monthly amount that’s distributed evenly over the service period covered by an invoice.
- Revenue is calculated evenly over the invoice item periods that you set when you create subscriptions. For example, prorations that have service periods that start before they are invoiced are recognized.
- Recognizable revenue is reported as a net of discounts. For example, an invoice for 50 USD with a 10 USD discount has a recognizable portion of 40 USD.
- Taxes are not recognizable. For example, an invoice for 50 USD with a tax of 5 USD has 50 USD in recognizable revenue and a tax liability of 5 USD. This makes the invoice and accounts receivable totals 55 USD.
- Revenue recognition reports use invoice item periods that you set when you create subscriptions. Revenue is immediately recognized for payments processed by Stripe that do not go through Stripe Billing and for invoices without an invoice item period set.
- Partial refunds and disputes are distributed evenly.
Report terminology
Revenue recognition reports contain a broad set of information. This includes the accounts that are debited or credited as part of your business activity. To get the most value out of the reports, it helps to understand what accounts are tracked, the type of debits and credits that impact those accounts, and the events that trigger these activities.
| Account | Debit/Credit type | Report | Description |
|---|---|---|---|
| Revenue | Revenue (credit) | Income statement | Recognizable portion of finalized invoices that count towards revenue during the month. For example, if an invoice line item is for 90 USD with 10 USD in taxes, the total invoice is 100 USD, but the recognizable portion is only 90 USD. |
| Refunds | Contra Revenue (debit) | Income statement | Portion of the refunded amount previously recognized. For example, if you issue a 120 USD refund on an annual subscription during the second month, 20 USD for the first two months is contra revenue. The remaining 100 USD is adjusted and reflected in your deferred revenue balance in the balance sheet. |
| Disputes | Contra Revenue (debit) | Income statement | Portion of the disputed amount previously recognized. For example, if there’s a 120 USD dispute on an annual subscription during the second month, 20 USD for the first two months is contra revenue. The remaining 100 USD is adjusted and reflected in your deferred revenue balance in the balance sheet. |
| CreditNotes | Contra Revenue (debit) | Income statement | Portion of the credit note amount previously recognized. For example, if there’s a 120 USD dispute on an annual subscription during the second month, 20 USD for the first two months is contra revenue. The remaining 100 USD is adjusted and reflected in your deferred revenue balance in the balance sheet. |
| BadDebt | Contra Revenue (debit) | Income statement | Previously recognized revenue from invoices that have been marked as uncollectible. |
| Voids | Contra Revenue (debit) | Income statement | Previously recognized revenue from invoices that have been voided. |
| UnbilledVoids | Contra Revenue (debit) | Income statement | Previously recognized revenue from invoice items that have been deleted. These items are sometimes deleted when they generate unbilled accounts receivable and revenue. |
| CustomerBalanceAdjustments | Expense (debit) | Income statement | Expenses incurred due to manual adjustments to a customer credit balance. |
| Underpayments | Expense (debit) | Income statement | Expenses incurred due to underpayment from push payment methods. |
| Recoverables | Gains (credit) | Income statement | Recovered funds that are not attributable to revenue. For example, if there’s a 120 USD dispute on an annual subscription during the second month, 20 USD for the first two months is contra revenue and the remaining 100 USD is adjusted from the deferred revenue balance. If you win the dispute and 120 USD is returned to you, 20 USD is reflected as revenue and the remaining 100 USD is reflected as recoverables. |
| FxLoss | Loss (debit) | Income statement | Total loss due to foreign currency exchange rates. |
| Account | Debit/Credit type | Report | Description |
|---|---|---|---|
| AccountsReceivable | Assets (debit) | Balance sheet | AccountsReceivable represents the amount you bill to customers and may be inclusive of taxes and other amounts that are not included in recognizable revenue. This account increases when invoices are finalized and decreases when invoices are paid. The ending balance reflects the amount due from customers at the end of each month. |
| Cash | Assets (debit) | Balance sheet | Cash is the net cash amount received. This does not include Stripe fees or payouts. It's calculated by subtracting refunds, disputes, and dispute reversals from your Stripe Balance Net Charge amount. Cash increases when customers pay their outstanding invoice balance. This also results in a corresponding decrease in AccountsReceivable. |
| DeferredRevenue | Liabilities (credit) | Balance sheet | Services that have been invoiced but not yet recognized as revenue. This represents a liability on your balance sheet because you have received cash for services that your business must deliver in future periods. The month end balance reflects the amount expected to be recognized in future periods. |
| TaxLiability | Liabilities (credit) | Balance sheet | The tax component of issued invoices. The ending balance represents the tax amount invoiced to customers but is still owed to relevant tax authorities. |
| UnbilledAccountsReceivable | Assets (debit) | Balance sheet | Transactions (such as prorations due to upgrades or downgrades) that have service periods that start before an invoice is issued. The ending balance reflects the transactions that have accrued revenue but have not yet been invoiced. |
| ExternalAsset | Assets (debit) | Balance sheet | Invoices you manually mark as paid when you receive funds outside of Stripe. The ending balance reflects the amount of invoices that were marked as paid using the Stripe Dashboard. This reduces AccountsReceivable. |
| CustomerBalance | Liabilities (credit) | Balance sheet | Credits that your customers accrue. The ending balance reflects the amount of invoices that were paid using customer credit balance. This reduces AccountsReceivable. |
| PendingCash | Assets (debit) | Balance sheet | Cash from payments that haven't been confirmed. It can take several days to confirm whether a payment is successful. Once confirmed, the amount is transferred to the Cash account. This happens with asynchronous payment methods like ACH debit. |
Event mapping
There are a few events that trigger debits and credits. Understanding these events can help you understand how revenue flows through your business.
| Event | Impact on revenue | Debit type | Credit type |
|---|---|---|---|
| Invoice is finalized | Revenue is recognized | AccountsReceivable | DeferredRevenue |
| Revenue from metered billing is recognized | AccountsReceivable | Revenue | |
| Taxes are not recognized | AccountsReceivable | TaxLiability | |
| End of the month | Total amount recognized | DeferredRevenue | RecognizedRevenue |
| Customer pays invoice | No recognition | Cash | AccountsReceivable |
| Charge refunded or disputed | Portion already recognized | Refunds, Disputes | Cash |
| Portion not recognized yet | DeferredRevenue | Cash | |
| Tax portion | TaxLiability | Cash |
Reversals in debits and credits like DebitDeferredRevenue or CreditAccountsReceivable, are due to negative invoice items. These are often caused by prorations.
Next steps
Review some examples to better understand revenue recognition and our tooling.