Reporting & Reconciliation

Revenue Recognition

ASC 606 and IFRS 15 compliant revenue recognition
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Revenue Recognition

(See Glossary: Reporting and Global Terms)

Revenue recognition is the accounting process that determines when collected revenue is “earned” and can be recorded as income in financial statements. Under ASC 606 (see Glossary: Reporting and Global Terms) and IFRS 15 (see Glossary: Reporting and Global Terms), revenue is recognised in proportion to when the promised service is delivered.

Why recognition differs from collection

When a customer pays £12,000 upfront for an annual subscription:

  • The £12,000 is collected on day 1 (a cash receipt)
  • The £12,000 is recognised as revenue at a rate of £1,000/month as the service is delivered over 12 months
  • The unrecognised balance (£11,000 after month 1) is deferred revenue (see Glossary: Billing Terms) — a liability on the balance sheet until it is earned

Understanding the distinction between cash collection and revenue recognition is essential for accurate financial statements. Revenue must only be recognised when the performance obligation is satisfied, not when payment is received.

Recognition rules configuration

For each product in the catalog, configure the recognition rule:

Immediate recognition:

  • Revenue is recognised in full on the invoice date
  • Use for: one-off products delivered immediately (a one-time data export, a training session delivered on a specific date)

Straight-line deferred recognition:

  • Revenue is recognised evenly over the service delivery period
  • Use for: recurring subscriptions where service is delivered continuously (monthly SaaS, annual maintenance contract)
  • Configuration: Specify the service start and end date relative to the invoice date (typically the subscription period)

Event/milestone recognition:

  • Revenue is recognised when defined delivery milestones are achieved
  • Use for: professional services contracts, implementation projects, multi-phase deliveries
  • Configuration: Define the milestones and the percentage of contract value attributable to each

Recognition schedules

(See Glossary: Reporting and Global Terms)

For every finalised invoice, Prolifi generates a recognition schedule — a time-series record of when and how much revenue will be recognised.

Example recognition schedule for a £12,000 annual invoice:

Recognition periodRecognition amountCumulative recognisedDeferred balance
March 2026£1,000£1,000£11,000
April 2026£1,000£2,000£10,000
May 2026£1,000£3,000£9,000
…£1,000……
February 2027£1,000£12,000£0

Recognition schedules are generated at invoice finalisation and updated if the invoice is subsequently amended (e.g., a credit note is issued).

Period-end recognition run

At the end of each accounting period:

  1. Review the recognition schedule for all invoices with recognition events in the period
  2. Confirm the recognition amounts match expectations
  3. Export the recognition journal entries for the period (CSV or the required accounting format)
  4. Import journal entries into your accounting system:
    • Debit: Deferred revenue account (reduces the liability)
    • Credit: Revenue account (increases recognised revenue)
  5. Verify that the deferred revenue balance in Prolifi matches the deferred revenue liability in your accounting system

Automate the period-end export using Prolifi’s scheduled exports feature. Configure a monthly export of recognition journal entries to reduce manual effort. See Financial Reports for export options.

Handling cancellations and adjustments

When a subscription is cancelled mid-period:

  • The remaining unrecognised balance in the recognition schedule is accelerated (recognised immediately) or reversed (depending on configuration)
  • If a credit note is issued for the unused period, the recognition schedule is adjusted accordingly

When a credit note is issued without cancellation (e.g., billing error correction):

  • The recognition schedule for the original invoice is reduced by the credit note amount
  • The reduced recognition schedule is applied going forward

For details on cancellation flows and credit note generation, see Cancellation and Retention.