Understand revenue recognition in QuickBooks Online

Learn why revenue recognition is important when you do your accounting in QuickBooks Online.

Revenue Recognition is a generally accepted accounting principle that defines how and when you recognise revenue. It lets you record a payment for a product or service you’ll deliver in the future and recognise the revenue over time.

Why Revenue Recognition is important

Revenue recognition helps businesses of all sizes recognise revenue consistently over time.

Business models that may use revenue recognition

Here are some examples of businesses in various business models that may use revenue recognition.

• Subscription based services. For example, a wine club that charges a membership fee on top of subscription fees and wants to recognise the membership revenue upfront but defers wine subscription revenue until they can deliver to the customer.
• Project-based or contractor services. For example, a project-based business or a contractor, who charges their customers upfront but wants to recognise some of the revenue only when that part of the job is complete.
• Software subscriptions. For example, a hosted software company that charges $ 240 yearly and recognises $ 20 every month until the software agreement ends.
• E-commerce services. E-commerce businesses receive payment upfront but recognise the revenue upon delivery.
• A pre-paid billing model. For example, an insurance company charges an annual premium at a discount, but the revenue is recognised monthly.
• Consulting services and law firms. For example, a law firm that charges its client a retainer fee before rendering services and wants to recognise the revenue only when the work is complete.

Related links

• Turn on revenue recognition in QuickBooks Online
• Set up a revenue recognition schedule in QuickBooks Online
• Choose between cash and accrual accounting methods in QuickBooks Online