How it works
When a customer prepays, the cash is real but the revenue is not yet earned, because the business still owes the service. IFRS 15, for example, recognises revenue when a performance obligation is satisfied by transferring the promised service to the customer. Until then the prepayment is carried as a liability, for prepaid credits typically released as credits are used.
This is why credit balances matter to finance as well as product: the total of unused paid credits approximates what the business still owes customers. Treatment of breakage, bonus credits, and subscription allowances varies with accounting standards and contract terms, so the details belong with an accountant.
Example
A customer pays $100 for 10,000 credits on March 1. On that day the business has $100 in cash and $100 of deferred revenue. During March the customer uses 3,000 credits, so $30 is recognised as revenue and $70 remains deferred at month end.
Deferred revenue in Cred
cred.diy records every purchase, issue, and deduction with amounts and timestamps, so the data finance needs to estimate deferred revenue, such as paid credits outstanding by period, comes straight from the ledger and the purchase records.
Hosted Checkout docsQuestions
- Are unused credits a liability?
- Paid credits that the customer can still redeem are generally treated as an obligation to deliver service. How free, promotional, or expiring credits are treated depends on your accounting policy.
- Does deferred revenue affect cash?
- No. The cash is already in the bank. Deferred revenue affects when the payment counts as revenue on the income statement, not when the money arrived.
- How do bonus credits affect deferred revenue?
- When a purchase includes bonus credits, the price is commonly spread across all the credits the customer received, paid and bonus together. The exact method depends on your accounting standard, so confirm it with your accountant.
