Revenue recognition basics for subscription businesses
14 Sept 2026 · 2 min read · By the Knock team
Key takeaways
- Revenue is generally recognised as the service is delivered, not when it is billed.
- Annual prepayments create deferred revenue.
- Your accountant decides the policy; billing data supplies the schedule.
Cash received and revenue earned are different things. For subscriptions, the difference is the heart of revenue recognition.
The core idea
A customer pays 12,000 on 1 January for a year of service. You have received cash, but you have delivered only a twelfth of the service by 31 January. Under accrual accounting, you recognise about 1,000 as revenue each month and hold the rest as deferred revenue, a liability for service still owed.
Example schedule
- 1 Jan: cash 12,000; deferred revenue 12,000.
- 31 Jan: recognise 1,000; deferred revenue 11,000.
- 28 Feb: recognise 1,000; deferred revenue 10,000.
- Continue monthly until the balance is zero.
Why billing and revenue differ
- Annual or quarterly prepayment.
- Mid-cycle upgrades and prorations.
- Credit notes and refunds.
- Discounts that change the amount over time.
What your billing system should provide
Each invoice line should show its service period. With start and end dates per line, your accountant can build the monthly recognition schedule without guesswork.
Tax is separate
Taxes such as GST collected are not your revenue. Keep them in separate lines.
Knock records the period covered by each invoice, giving your accountant the inputs they need.
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