GlyphMar 5, 2023

You should absolutely go do this if you can, but, I think that this highlights an important aspect of small business / startup budgeting that a lot of people miss.

Gruber uses the phrase “already booked revenue” to describe the refundable portions of subscriptions. That isn’t (or, well, shouldn’t) be how you understand “revenue”.

A more accurate term would be “cash in the bank”, and the distinction is important.

https://mas.to/@dnanian/109970578089893239

Dave Nanian (@[email protected])

The fine folks at Tapbots and the Iconfactory need your help. If you were a subscriber to either Tweetbot or Twitteriffic, please re-install the app and click the button to decline your refund. It's difficult, perhaps, to understand what a huge impact this would make on these folks, but your effort and small monetary sacrifice will help them more than you know. More details in Daring Fireball's post: https://daringfireball.net/2023/03/tweetbot_and_twitterrific_face_the_cliff

mas.to
Show threadGlyphMar 5, 2023
When you, as a business, accept money for a prepaid subscription, you have made zero revenue. What you’ve done is increased your cash bank balance, but to balance the other side of that double-entry transaction, you have not booked revenue, you have booked a *liability* to the customer, which must be paid back in either services delivered, or money. You have made zero (0) revenue at that moment in time.
Show threadGlyphMar 5, 2023
As each month of the prepaid subscription passes, you make transactions out of this liability — “unearned revenue” — and into your real revenue. Now, it’s not realistic to treat this cash on hand as untouchable and owed to customers. You’re not a bank, it’s not a deposit, and every customer simultaneously demanding a full refund for your service is weird enough that it’s understandable to operate as if it won’t happen. Getting prepayments allows you to make investments you otherwise couldn’t.
Show threadGlyphMar 5, 2023
For a more technical explanation of the accounting principles involved, see here https://www.investopedia.com/terms/u/unearnedrevenue.asp
Unearned Revenue: What It Is, How It Is Recorded and Reported

Unearned revenue is money received by an individual or company for a service or product that has yet to be provided or delivered.

Investopedia
Show threadMoshe Zadka
@glyph I thought Patrick's explanation of this was particularly good in https://www.bitsaboutmoney.com/archive/accounting-for-saas-and-swords/
Accounting for SaaS and swords

Revenue recognition for software companies is much deeper than many appreciate, and improbably implicates the age-old question "What is the economically useful life of an imaginary sword?"

Bits about Money
Mar 5, 2023 at 6:25pmWeb