Subscription Accounting for SaaS Companies
Subscription Accounting for SaaS Companies – The complete operational accounting guide for subscription businesses – new subscriptions, upgrades, downgrades, pauses, cancellations, refunds, billing failures, and the full MRR waterfall from opening to closing balance.
5 Key Takeaways From This Page
New subscriptions, upgrades, downgrades, pauses, cancellations, and refunds each require different journal entries. Getting the timing and direction right for each event is the foundation of accurate SaaS financial reporting.
When a customer upgrades or downgrades mid-period, the revenue and deferred revenue must be adjusted proportionally. You need a documented proration policy that is applied consistently to every mid-cycle event.
MRR data comes from your subscription database (Stripe, ChartMogul) rather than your general ledger. But it must reconcile to your accounting figures – any gap between your MRR dashboard and your P&L revenue warrants investigation.
A failed payment does not automatically reverse revenue recognition. You must make an assessment: is the payment temporarily failed (likely to recover via dunning) or is it a genuine bad debt? The accounting treatment differs between these two outcomes.
Customer cancellations affect revenue immediately, reduce the deferred revenue balance, and create the churn MRR figure that investors scrutinise most closely. Every cancellation must be processed on the correct date with the correct accounting entries.
What does subscription accounting involve on a practical, transaction-by-transaction basis? Every subscription lifecycle event – new sign-up, plan upgrade, seat expansion, downgrade, pause, cancellation, refund, and failed payment – has a specific accounting and MRR impact that must be recorded correctly and in the right period. This page covers every event type with the corresponding journal entries, deferred revenue adjustments, MRR movements, and the month-end waterfall that ties them all together.
Section 1 – The Subscription Lifecycle: Every Event and Its Impact
A complete map of every subscription event, its MRR category, and its accounting consequence
The Eight Subscription Events
A SaaS company’s subscription database records a continuous stream of events: customers starting, expanding, shrinking, pausing, and ending their relationship with the product. Each event changes MRR and requires accounting entries. Managing these correctly – in the right period, at the right amount – is the core operational challenge of SaaS accounting.
| Event | MRR Impact | Deferred Revenue Impact | P&L Revenue Impact | Journal Entry Direction |
|---|---|---|---|---|
| New subscription (monthly) | + New MRR | Usually no material deferred balance where billing and service period coincide | Revenue recognised as the subscription service is provided | DR Cash/Receivable / CR Revenue, with any required contract liability for amounts billed in advance |
| New subscription (annual, upfront) | + New MRR | + Liability (deferred revenue) | + 1/12 per month as earned | DR Cash / CR Deferred Revenue; then monthly release |
| Plan upgrade (e.g. Starter → Pro) | + Expansion MRR | Adjust deferred if annual | + Additional revenue from upgrade date | DR Cash/Receivable / CR Deferred Revenue for the additional advance charge; release to revenue as the upgraded service is provided |
| Seat expansion (same plan, more seats) | + Expansion MRR | Adjust deferred if annual | + Seat revenue from expansion date | Same as upgrade – prorate for mid-cycle |
| Plan downgrade | − Contraction MRR | Reduce deferred proportionally | − Reduced revenue from downgrade date | Reverse portion of deferred; adjust future recognition |
| Subscription pause | MRR frozen | Adjust recognition schedule | Revenue suspended during pause | Suspend deferred release; resume when active |
| Cancellation (end of period) | − Churned MRR | Zero deferred at end of period | Continue to period end; zero after | Monthly release continues; zero at cancellation date |
| Cancellation (immediate, no refund) | − Churned MRR | Reassess the contract liability based on the contractual rights and obligations remaining after termination | Remaining deferred revenue must not automatically be recognised solely because access has been terminated | DR Deferred / CR Revenue only for the amount the company is entitled to retain after all related performance obligations have ended |
| Refund (within refund window) | − Churned MRR | Reverse deferred (if annual) or reverse revenue | Reduce revenue only for amounts previously recognised; otherwise reduce the contract liability or settle the refund liability | DR Revenue (or Deferred) / CR Cash |
| Failed payment → recovered | No MRR change | No deferred change | Revenue recognised as normal; cash timing differs | No entry change; update cash when recovered |
| Failed payment → bad debt | − Churned MRR | Do not write off prepaid contract liabilities solely because another payment fails | Recognise impairment of valid receivables; do not automatically reverse revenue for services already delivered | DR Bad Debt Expense / CR Accounts Receivable |
Section 2 – New Subscriptions
Accounting for new monthly and annual sign-ups, including trial conversions and promotional pricing
Monthly Subscription – Simplest Case
A monthly subscriber paying in advance creates a contract liability until the related service is provided. Where billing and service occur within the same accounting month, the month-end deferred balance may be zero. The only complication is VAT treatment, which depends on whether the customer is Estonian (24% charged), EU B2B (reverse charge, 0%), EU B2C digital services generally subject to destination-country VAT, subject to the €10,000 EU-wide threshold where applicable; OSS may be used to report the VAT, or non-EU customers – VAT treatment depends on customer status and the applicable place-of-supply rules.
New Monthly Subscriber – €199/month (Estonian B2B customer)
| Account | Debit (DR) | Credit (CR) |
|---|---|---|
| Cash – Stripe | €199.00 | |
| Revenue – Monthly Subscriptions | €160.48 | |
| VAT Payable – KMD (24%) | €38.52 |
* €199 gross = €160.48 net + €38.52 VAT (€199 ÷ 1.24 = €160.48; VAT = €38.52).. For qualifying EU B2B services subject to reverse charge, Estonian VAT is generally not charged. Record the actual VAT-exclusive consideration as revenue and apply the required reverse-charge invoice and reporting rules.
Annual Subscription – Upfront Payment
Annual subscriptions paid upfront are the most common source of complexity. The cash arrives on day one; the revenue earns over 12 months. The gap between cash and revenue recognition lives in the deferred revenue account.
New Annual Subscriber – €1,988 upfront (€199/month × 12 = €2,388 − 2 months free = €1,988)
| Account | Debit (DR) | Credit (CR) |
|---|---|---|
| Cash – Stripe | €1,988.00 | |
| Deferred Revenue – Annual Subs | €1,603.23 | |
| VAT Payable – KMD (24% – if Estonian) | €384.77 |
* Annual plan with 2 free months discount (€1,988 = 10 months paid, 2 free). VAT on the actual amount charged (€1,988). Deferred revenue = net amount = €1,988 ÷ 1.24 = €1,603.23. Recognition over 12 equal monthly service periods would be approximately €133.60 per month, subject to rounding.
Monthly Revenue Release – Annual Sub (each of 12 months)
| Account | Debit (DR) | Credit (CR) |
|---|---|---|
| Deferred Revenue – Annual Subs | approximately €133.60 | |
| Revenue – Annual Subscriptions | approximately €133.60 |
* No cash movement. Deferred liability reduces by €125.91 each month; P&L revenue increases. After month 12, deferred balance = €0.
Section 3 – Plan Upgrades and Seat Expansions
How to account for plan changes mid-cycle, including proration of deferred revenue
The Proration Policy
When a customer upgrades their plan mid-period – say, from Starter at €99/month to Pro at €249/month on day 15 of a 30-day billing month – you need to decide how to handle the partial period. Most SaaS billing systems (Stripe Billing, Chargebee) offer two approaches: immediate proration (adjust the current billing cycle) or next-cycle proration (change takes effect at the next billing date). Both are commercially acceptable, but each has different accounting implications and both require a documented, consistently-applied policy.
| Proration Approach | How It Works | Revenue Recognition Impact | Customer Billing Impact | Best For |
|---|---|---|---|---|
| Immediate – same cycle | Customer charged/credited for remaining days at new rate | Expansion MRR recorded from upgrade date; P&L reflects new rate | Invoice or credit adjustment in current cycle | High-value upgrades; enterprise customers who need immediate access |
| Next cycle (anniversary) | Change takes effect at next renewal; no proration | Expansion MRR recorded from first full cycle at new rate | No billing change this cycle | Self-serve; lower-value; where billing simplicity is priority |
Mid-Cycle Upgrade – Proration Charge (Day 11 of 31-day month)
A customer on a monthly Pro plan (€299/month) upgrades to Enterprise (€799/month) on day 11 of a 31-day month. Stripe immediately charges a proration invoice of €500 × (20/31) = €322.58 for the remaining 20 days at the higher rate.
| Account | Debit (DR) | Credit (CR) |
|---|---|---|
| Cash – Stripe (proration invoice) | €322.58 | |
| Revenue – Monthly Subscriptions | €260.15 | |
| VAT Payable – KMD (24%, included in €322.58) | €62.43 |
* Proration = €500 (rate difference) × 20/31 days remaining. Revenue recognised for the partial period. MRR impact: +€500 Expansion MRR (full monthly rate difference) from upgrade date. Next month: full €799 billed.
Annual Plan Upgrade – Deferred Revenue Adjustment
Upgrades on annual plans require adjusting the deferred revenue balance. The customer pre-paid for 12 months of Starter; they are now entitled to 12 months of Pro. The deferred balance must be increased to reflect the higher monthly value, and the incremental amount is typically charged as an additional prorated invoice.
Annual Plan Upgrade – Deferred Revenue Recalculation
Situation: Customer 6 months into annual Starter (€99/month), upgrades to Pro (€249/month)
Step 1: Current deferred revenue balance
Starter annual payment: €99 × 12 = €1,188 (excl. VAT)
Months elapsed: 6 months recognised = €99 × 6 = €594
Remaining deferred balance: €1,188 − €594 = €594
Step 2: Required deferred balance at the new plan
Remaining months: 6 months
New monthly rate: €249
Required deferred: €249 × 6 = €1,494
Step 3: Incremental charge to customer
Additional deferred needed: €1,494 − €594 = €900
This amount is billed to the customer as an upgrade invoice
Journal Entry:
DR Cash – Stripe (upgrade invoice): €900.00
DR Deferred Revenue – Annual Subs: €0 (reduce Starter portion)
CR Deferred Revenue – Annual Subs: €900.00 (increase to Pro level)
New deferred balance: €1,494 | Release: €249/month for remaining 6 months
Expansion MRR: +€150/month from upgrade date
Section 4 – Downgrades and Contractions
Reducing a subscription – the accounting impact and what it means for NRR
Plan Downgrade – Revenue Reduction
A downgrade reduces the monthly value of a subscription. For monthly plans, the reduction is recognised from the effective date of the downgrade. For annual plans, the excess deferred revenue must be either refunded to the customer or credited to their account for future periods, depending on your contract terms.
| Downgrade Type | MRR Impact | Deferred Revenue Adjustment | Accounting Entry | Common Policy |
|---|---|---|---|---|
| Monthly plan downgrade (immediate) | − Contraction MRR at downgrade date | Adjust any advance payment for the unused service period from the effective downgrade date | Record the agreed prorated refund or credit against deferred revenue (or revenue if already recognised); apply the lower rate from the effective date | Apply immediately; notify customer of new billing rate |
| Monthly downgrade (end of cycle) | − Contraction MRR at next renewal | No deferred | Apply from next billing date | Standard; customer keeps current plan till expiry |
| Annual plan downgrade with refund | − Contraction MRR + potential churn | Reduce deferred to new plan value; refund excess | DR Deferred Revenue / CR Cash (refund) for excess | Rare – usually no refund on annual downgrades |
| Annual plan downgrade, credit applied | − Contraction MRR | Reduce deferred to new plan value; credit remainder to future | DR Deferred Revenue / CR Customer Credit Liability | Credit expires within 12 months typically |
| Seat removal (team plan) | − Contraction MRR for removed seats | Prorate if annual; immediate if monthly | Same as plan downgrade by equivalent seat value | Issue credit note; apply to next invoice or refund |
Contraction MRR represents value lost from customers who stayed but reduced their spend. Churn MRR represents value lost from customers who cancelled entirely. The distinction matters because: the NRR calculation treats them differently, the cause is typically different (product satisfaction vs pricing sensitivity), and the recovery path is different (expansion to recover contraction; win-back to recover churn).
Monthly Plan Downgrade – €249 Pro to €99 Starter (effective next cycle)
| Account | Debit (DR) | Credit (CR) |
|---|---|---|
| No journal entry required in the month of downgrade decision | ||
| At next renewal: cash collected = €99 (Starter rate) | ||
| Revenue recognised = €99 | ||
| MRR waterfall: shows −€150 Contraction MRR | ||
| Customer remains active – no deferred revenue impact | ||
| * For monthly plans: downgrade is a forward-looking change. No adjustment to current month’s revenue. The reduction appears in the MRR waterfall as Contraction MRR from the effective date. | ||
Section 5 – Subscription Pauses
How to handle revenue recognition when a subscription is temporarily suspended
What a Pause Means for Revenue Recognition
Some SaaS companies offer the ability to pause a subscription – typically for 1–3 months during which the customer retains some access or their data but is not billed. A pause effectively extends the subscription term: a 12-month subscription that is paused for 2 months becomes a 14-month subscription (12 paid months + 2 paused months, with billing resuming after the pause).
Under IFRS 15, a pause changes the timing of revenue recognition but not the total amount. If a customer pauses a monthly plan, no revenue is recognised during the pause period (no service delivery). For annual plans, the deferred revenue release is suspended during the pause; it resumes when the customer reactivates.
| Pause Scenario | During Pause | After Reactivation | Deferred Revenue Impact | MRR Impact |
|---|---|---|---|---|
| Monthly plan pause (billing suspended) | No revenue recognised; no cash collected | Billing resumes at full rate; revenue recognised normally | No deferred (monthly plan); just revenue stops | MRR frozen – not churned (still a contracted subscriber) |
| Annual plan pause (billing continues but service suspended) | Revenue recognition suspended; cash already collected | Recognition resumes; term extends by pause duration | Deferred release suspended; extends by pause months | MRR remains on dashboard – service paused not cancelled |
| Annual plan pause with billing also suspended | No new cash; recognition suspended | Resume service over the extended term; bill only amounts due under the revised contract, without charging again for prepaid service | Deferred release suspended and extended | MRR frozen – not churned |
Some SaaS companies include paused subscriptions in MRR (treating them as contracted subscribers who will return); others exclude them (treating them as churned until they reactivate). Neither is definitively correct, but the policy must be consistent and disclosed. Most investors prefer to see paused subscriptions excluded from MRR – it avoids inflating the active revenue base with customers who are not currently paying.
Section 6 – Cancellations: End-of-Period and Immediate
How cancellation timing determines the accounting treatment
The Two Types of Cancellation
Subscription cancellations come in two forms with different accounting consequences. End-of-period cancellation means the customer cancels but retains access until their current billing period ends – revenue recognition continues normally until access ceases. Immediate cancellation means access is terminated now – if there is remaining deferred revenue (for annual plans), the treatment depends on your refund policy.
| Cancellation Type | Access | Revenue During Notice Period | Deferred Revenue Treatment | MRR Impact Date |
|---|---|---|---|---|
| Monthly – end of current period | Until billing period expires | Recognise VAT-exclusive revenue as service is provided until expiry | Release any advance-payment contract liability as service is provided | MRR removes on last day of paid period |
| Monthly – immediate, no refund | Terminated now | Recognise delivered service and assess entitlement to any remaining non-refundable consideration | Assess and settle any remaining contract liability; immediate recognition requires no remaining performance obligations and entitlement to retain the amount | MRR removes today |
| Annual – end of contracted term | Until contract end | Continue releasing €100/month until contract end | Continue monthly release until zero | MRR removes on last day of contract |
| Annual – immediate, no refund | Terminated now | Determine whether the company has an enforceable non-refundable right to the remaining consideration and whether all performance obligations have been extinguished | Recognise the remaining contract liability only to the extent permitted under the applicable revenue-recognition rules | MRR removes today |
| Annual – immediate, with refund | Terminated now | Refunds for undelivered service reduce the contract liability; reverse revenue only if it was previously recognised | DR Deferred Revenue / CR Cash for refunded unearned amounts; use Revenue or Refund Liability only where applicable | MRR removes today |
End-of-Period Cancellation – Annual Plan (3 months remaining, no refund)
| Account | Debit (DR) | Credit (CR) |
|---|---|---|
| No immediate journal entry required | ||
| Continue monthly release: DR Deferred €100 / CR Revenue €100 | ||
| After 3 months: deferred = €0, recognition = complete | ||
| * Normal monthly entries continue until contract end. MRR is removed immediately on cancellation date (investor reporting), but P&L revenue continues until access ends. The timing difference is normal and should be disclosed. | ||
Immediate Cancellation – Annual Plan (6 months remaining, no refund)
| Account | Debit (DR) | Credit (CR) |
|---|---|---|
| Deferred Revenue – Annual Subs | €600.00 | |
| Revenue – Annual Subscriptions | €600.00 |
* Do not automatically recognise the entire remaining contract liability on cancellation. The accounting depends on the termination provisions, enforceable rights to consideration and whether any performance obligations remain. Revenue accelerated; deferred cleared. MRR loss: −€100/month churned.
Immediate Cancellation with Refund – Annual Plan (6 months, 50% refund policy)
| Account | Debit (DR) | Credit (CR) |
|---|---|---|
| Deferred Revenue – Annual Subs | €600.00 | |
| Revenue – Annual Subscriptions | €300.00 | |
| Cash – Refund to Customer | €300.00 |
* Company has a 50% refund policy for remaining term. €300 recognised as earned revenue (first 6 months × 50% of monthly rate attribution); €300 refunded. Deferred revenue fully cleared.
Section 7 – Refunds and Chargebacks
Revenue reversal, VAT adjustments, and the MRR impact of refund events
Refund Accounting – Three Scenarios
Refunds may reduce revenue, settle a refund liability or reduce a contract liability depending on whether the related consideration had already been recognised as revenue. The accounting entries depend on whether the refund occurs in the same accounting period as the original revenue (simpler – just reverse) or in a later period (more complex – revenue reversal affects current period P&L).
Scenario A – Same-Month Refund (customer refunded in same month as charge)
| Account | Debit (DR) | Credit (CR) |
|---|---|---|
| Revenue – Monthly Subscriptions | €160.48 | |
| VAT Payable – KMD | €38.52 | |
| Cash – Stripe (refund issued) | €199.00 |
* Simplest case: revenue reversed in the same period as recognition. Net effect on P&L: zero revenue for this customer in this month. VAT also reversed on KMD return.
Scenario B – Prior-Period Refund (customer refunded in a later month)
| Account | Debit (DR) | Credit (CR) |
|---|---|---|
| Revenue – Monthly Subscriptions | €160.48 | |
| VAT Payable – KMD (current month) | €38.52 | |
| Cash – Stripe | €199.00 |
* Refund in a later month reduces current-month revenue – not prior month. A later refund is accounted for according to the applicable contract modification, variable consideration and refund-liability rules. It should not automatically be treated as a current-period revenue reversal in every case. VAT credit note issued; KMD reduced in current month.
Scenario C – Chargeback (customer disputes and bank reverses payment)
| Account | Debit (DR) | Credit (CR) | ||
|---|---|---|---|---|
| Dunning Outcome | Revenue Treatment | Journal Entries | MRR Treatment |
|---|---|---|---|
| Payment recovered within dunning | Recognise normally – no gap | DR Cash / CR Accounts Receivable for amounts already recognised as receivables | MRR unchanged – customer stays active |
| Customer updates card and pays late | Revenue recognition follows satisfaction of the performance obligation, not the date cash is collected; recognise a receivable where the right to consideration is unconditional | DR Cash / CR Accounts Receivable for the subscription debt; recognise an enforceable late fee separately, without recording previously accrued income again | MRR unchanged if grace period not exceeded |
| Payment not recovered; customer churns | Stop recognising revenue for services no longer provided; amounts already recognised for services delivered are generally subject to receivable impairment/bad-debt accounting rather than automatic revenue reversal | DR Impairment/Bad Debt Expense / CR Allowance or Accounts Receivable, as applicable | − Churned MRR from failure date |
| Partial recovery (customer pays partial) | Recognise revenue for services delivered under a qualifying contract; partial collection does not by itself limit revenue to cash received | DR Cash / CR Accounts Receivable for the amount collected; recognise impairment of the unrecoverable balance or use the existing loss allowance on write-off | Assess whether to downgrade or churn MRR |
A failed payment does not by itself determine whether January revenue may be recognised. Assess whether the IFRS 15 contract criteria remain satisfied and whether the service was provided; an existing receivable may instead require impairment under the applicable financial-instrument rules. Revenue under IFRS 15 requires that it is probable the company will collect the consideration. A payment that has been failing for the entire month is not probable to be collected. Do not automatically reverse recognised revenue because payment remains outstanding at month-end. Where revenue was validly recognised and an unconditional receivable exists, assess the receivable for impairment; discontinue future revenue recognition if the contract no longer meets the relevant recognition requirements. Most SaaS companies with a normal dunning cycle resolve failed payments within 7 days – only genuinely unresolvable failures require the bad debt treatment.
Section 9 – The Full Monthly MRR Waterfall
A comprehensive month-end MRR movement report reconciling to P&L revenue
Building the Complete Waterfall – October 2025
| Event / Customer | Plan | MRR Movement (€) | MRR Impact | Accounting Entry |
|---|---|---|---|---|
| OPENING MRR (30 September) | €42,800 | Opening | Balance brought forward | |
| NEW SUBSCRIPTIONS | ||||
| Acme Innovations | Pro Annual | + €249 | New MRR | DR Cash / CR Deferred |
| TechFlow GmbH | Starter Monthly | + €99 | New MRR | DR Cash / CR Revenue |
| Quantum Labs (3 seats) | Team Annual | + €597 | New MRR | DR Cash / CR Deferred |
| + 8 other new customers | Various | + €1,320 | New MRR | Per plan type |
| EXPANSION MRR | ||||
| BuildStack Ltd | Pro → Enterprise | + €500 | Expansion | Proration charge |
| Nordic Solutions (added 5 seats) | Team Plan | + €295 | Expansion | Seat addition invoice |
| + 4 other expansions | Various | + €480 | Expansion | Per upgrade type |
| CHURNED MRR | ||||
| StartupXYZ | Starter Annual | − €99 | Churn | Continue deferred revenue release until service ends; release any remaining balance only if the company is entitled to retain it and has no remaining performance obligations |
| Freelancer AB | Pro Monthly | − €249 | Churn | Monthly plan ends; no entry |
| + 3 other cancellations | Various | − €480 | Churn | Per plan and timing |
| CONTRACTION MRR | ||||
| DataCo | Enterprise → Pro | − €550 | Contraction | Downgrade – future billing reduced |
| MicroSoft Inc | Removed 3 seats | − €177 | Contraction | Proration credit issued |
| REACTIVATED MRR | ||||
| OldCustomer GmbH | Pro Monthly (reactivated) | + €249 | Reactivation | New subscription entry |
| CLOSING MRR (31 October) | €45,034 | Closing | Opening + all movements | |
| Net New MRR | + €2,234 | Net | New + Exp − Churn − Cont + React | |
| MoM Growth | + 5.2% | Growth | €2,234 ÷ €42,800 | |
NRR Calculation – October 2025
| Metric | Starter Plan | Pro Plan | Combined |
|---|---|---|---|
| Opening MRR (from cohort) | €18,200 | €16,400 | €34,600 |
| + Expansion MRR | €480 | €795 | €1,275 |
| − Churned MRR | −€99 | −€498 | −€597 |
| − Contraction MRR | −€177 | −€550 | −€727 |
| Closing MRR (cohort only) | €18,404 | €16,147 | €34,551 |
| NRR % | 101.1% | 98.5% | 99.9% |
An NRR above 100% means existing customers are paying more this month than last month – expansion revenue is outpacing churn and contraction from the same cohort. This creates compounding revenue growth: even with no new customer acquisition, the company’s revenue grows. An NRR below 100% means the base is eroding – churn and contraction exceed expansion. Investors typically look for NRR above 110% for a healthy B2B SaaS business, with 120%+ indicating excellent product-market fit and expansion motion.
Frequently Asked Questions
Mid-month switches from monthly to annual require a careful transition entry. Most billing systems handle this by crediting the unused days of the current monthly billing period and charging the full annual fee from the switch date. Accounting: credit the unused days as a reduction of the monthly subscription revenue or as a credit against the annual payment (depends on your billing flow). The full annual amount then goes to deferred revenue and releases monthly from the switch date. In practice: if the customer’s monthly billing date was the 1st and they switch on the 15th with 16 days remaining in the cycle, a credit of (16/31) × €199 = €102.71 is issued. This reduces the monthly revenue recognised, and the annual payment creates the deferred revenue balance. Update the MRR waterfall: the upgrade from monthly to annual appears as a change in MRR cadence but not necessarily as expansion MRR (unless the annual rate is higher than monthly × 12, which it usually is if you offer an annual discount).
Stop recognising revenue and make a bad debt provision. Under IFRS 15, revenue can only be recognised when it is highly probable that the consideration will be collected. Three months of failed payments with no recovery strongly indicates that collection is not probable. You should reverse the revenue recognised since the last successful payment, create a bad debt expense equal to the amount written off, and update the MRR waterfall to reflect the churn (typically backdated to the date access was effectively suspended). Going forward: implement a stricter dunning process that suspends access within 14 days of failed payment, preventing the accumulation of uncollected recognised revenue. Some SaaS companies also have a policy of treating subscriptions as cancelled (and revenue reversed) after two consecutive failed billing cycles.
The subscription database (Stripe Billing, ChartMogul, Chargebee) maintains the customer-level MRR record – every subscription, its plan, its value, and all events. For audit purposes, this database should be exportable as a point-in-time snapshot showing each customer’s active subscriptions at the reporting date. The sum of all active subscription monthly values = MRR at that date. The year-end audit typically involves: agreeing the MRR snapshot to recognised revenue in the deferred revenue schedule, sampling individual customer records against the billing system, and confirming that cancelled subscriptions are not included in the closing MRR. Keep exports of the subscription database at each month-end as a permanent record.
During the pause, suspend the monthly deferred revenue release. The deferred balance stays where it is for 2 months – no P&L revenue, no reduction in the liability. When the customer reactivates, resume the monthly release. The effective result is that the subscription term extends by 2 months: a 12-month annual subscription with a 2-month pause becomes a 14-month service period (12 months of active service + 2 months of pause). The total recognised revenue over the full term equals the original contract amount. The deferred revenue balance at each point in time correctly reflects the remaining service obligation.
Stripe and your accounting system recognise revenue on different bases and with potentially different timing. Stripe reports contain several different metrics, including payments, gross volume, fees and revenue-recognition data depending on the Stripe products enabled. Do not assume that a Stripe “Revenue” figure always represents cash collected or net settlement. Your accounting system recognises revenue based on IFRS 15 – ratably over the subscription period for annual plans, with deferred revenue movements. To reconcile: (1) Take Stripe’s total monthly charges. (2) Subtract VAT collected (Stripe often shows gross figures). (3) Add/subtract deferred revenue movement (opening balance minus closing balance). (4) Add/subtract other adjustments (refunds, chargebacks). The resulting figure should equal your accounting P&L revenue. If it does not, the difference is usually one of: timing of recognition (annual plans not yet released from deferred), multi-element contract allocation, or transactions that exist in one system but not the other (e.g. manually invoiced enterprise deals not through Stripe).
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