Most founders mess this up.
They see $12,000 hit their bank account and think they just made $12,000 in revenue.
Wrong.
You made $1,000 in revenue…if it’s an annual contract.
➡️ WHAT IS REVENUE RECOGNITION
Revenue is earned income from delivering goods or services.
Recognition is when it’s reported on your income statement.
These happen at different times.
You collect $12,000 upfront for an annual subscription.
But you only earned $1,000 of that in month one.
The other $11,000? That’s deferred revenue sitting on your balance sheet.
➡️ THE JOURNAL ENTRIES
When the sale happens:
Debit Cash $12,000
Credit Deferred Revenue $12,000
Each month as you deliver service:
Debit Deferred Revenue $1,000
Credit Revenue $1,000
This moves money from your balance sheet to your P&L as you actually earn it.
➡️ DAILY VS MONTHLY METHODS
You can recognize revenue daily or monthly.
Daily method: $12,000 ÷ 365 days = $33 per day
Monthly method: $12,000 ÷ 12 months = $1,000 per month
Both get you to $12,000 over the year.
Daily gives more precision but monthly is simpler.
➡️ THE BASE FORMULA
Every deferred revenue balance follows this pattern:
Beginning Balance + Additions – Subtractions = Ending Balance
Additions = new cash collections
Subtractions = revenue recognized
Track this for every contract and you’ll know exactly where you stand.
➡️ THE MANUAL NIGHTMARE
Most founders start tracking this in spreadsheets.
Works fine for 10 contracts
Gets messy at 50.
Completely breaks at 100+.
Picture this…you’ve got 50 active contracts.
Each one has different start dates, different terms, different recognition schedules.
You’re tracking everything in Excel.
Every month you need to:
Update deferred revenue balances for each contract.
Calculate how much revenue to recognize.
Create journal entries for each one.
Make sure everything ties to your GL.
I’ve seen many people spending 3 full days every month just on revenue recognition.
And you know what happened?
They’d still find errors weeks later.
➡️ DAILY METHOD MAKES IT WORSE
Think monthly is bad? Try daily recognition with multiple contracts.
$12,000 annual contract = $32.88 per day
$24,000 contract = $65.75 per day
$6,000 contract = $16.44 per day
Now multiply that by 50+ contracts…each starting on different dates.
You’re calculating different daily amounts for hundreds of line items.
➡️ AUTOMATION SAVES YOUR SANITY
Maxio completely eliminates this pain.
Set up your revenue recognition rules once.
The system automatically applies them across every contract.
Daily, monthly, whatever method you choose…it just works.
30 minutes to run reports and review everything.
That’s it.
No more manual calculations, no more formula errors, no more audit trail headaches.
Everything’s automatically GAAP compliant and audit-ready.
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How do you currently track your revenue recognition?
