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Revenue Recognition

Target Audience: Users, Stakeholders

Introduction

Revenue recognition determines when subscription income counts as earned revenue in your financial reports. Under IFRS 15, revenue is recognised when a performance obligation is satisfied — not when payment is received. For subscriptions, this means revenue is earned gradually as the service is delivered over the subscription period.

Payway handles revenue recognition automatically. When bookkeeping is enabled, the system tracks performance obligations for every active subscription and recognises revenue daily.

Deferred Income and Revenue

When a customer pays for a subscription, the full payment amount is recorded as deferred income — a balance sheet liability. This represents the publisher's obligation to deliver the subscription service.

As the service is delivered, deferred income is converted to revenue through journal entries:

Account Debit Credit
DR Deferred Income (2990) 3.30
CR Revenue (3001) 3.30

By the end of the subscription period, all deferred income has been converted to revenue, and the obligation is fully satisfied.

Example: A customer pays 99.00 SEK (incl. 25% VAT) for a 30-day digital subscription. The net amount is 79.20 SEK.

  • Day 1: 79.20 SEK (excl. VAT) is recorded as deferred income
  • Each day: 2.64 SEK (79.20 / 30) moves from deferred income to revenue
  • Day 30: The full 79.20 SEK has been recognised as revenue

Revenue recognition always operates on net amounts (excl. VAT). VAT is recorded separately at the time of payment and is not part of the revenue recognition process.

Time-Based Recognition

Time-based recognition is the default model, suitable for digital subscriptions where access is continuous.

Revenue is recognised evenly across calendar days:

The daily amount is calculated by dividing the total obligation amount by the number of days in the subscription period. Revenue is recognised automatically each day for all active subscriptions.

Issue-Based Recognition

Issue-based recognition is designed for print subscriptions where the publisher's obligation is fulfilled with each delivered issue rather than evenly across time.

Revenue is recognised on each distribution date (publishing day):

The per-issue amount is calculated by dividing the total obligation amount by the number of issues in the subscription period. The number of issues is determined from the distribution calendar for the subscription's service period. For example, a newspaper that publishes 5 days a week would have roughly 65 issues in a 3-month period, compared to approximately 90 calendar days.

Subscriptions are sold by time, not issue count

Customers always purchase subscriptions for a time period (e.g., "3 months"). The issue count is derived internally from the distribution calendar and is used only for revenue recognition calculations. Customers are not aware of the per-issue rate.

The recognition type is configured through accounting profiles — a "Digital" profile would use time-based recognition, while a "Print" profile would use issue-based recognition.

Subscription Lifecycle Events

Revenue recognition adapts automatically to changes in the subscription lifecycle:

Renewals

When a subscription renews, a new performance obligation is created for the new period. Revenue recognition continues seamlessly — the old obligation completes, and the new one begins.

Credits and Refunds

When a credit or refund is issued, the system adjusts the obligation to reflect the reduced amount. The calculation follows IFRS 15 principles:

  • If revenue has not yet been recognised (e.g., credit issued on day 1): the full credit amount reduces deferred income.
  • If some revenue has already been recognised: the credit is split proportionally between deferred income (for the unearned portion) and a revenue reversal (for the already-earned portion that now exceeds the reduced total).

This ensures financial reports remain accurate regardless of when a credit is issued during the subscription period.

Service Period Changes

When the subscription's service period is extended or shortened without a price change (e.g., a goodwill extension by customer service, or a contract lengthening as part of a campaign), the obligation amount stays the same but the daily recognition rate changes:

  • Extension (e.g., 30-day subscription extended to 44 days): The remaining unrecognised amount is spread over more days, reducing the daily rate. Revenue already recognised is not affected.
  • Shortening (e.g., service period reduced): The remaining unrecognised amount is spread over fewer days, increasing the daily rate.

Example: A subscription with 79.20 SEK net over 30 days (2.64/day). After 10 days, 26.40 SEK has been recognised. The period is extended by 14 days (to 44 days total). The remaining 52.80 SEK is now spread over 34 remaining days instead of 20, giving a new rate of 52.80 / 34 = 1.55 SEK/day.

Deactivation

When a subscription is deactivated mid-period, revenue recognition stops at the deactivation date:

  • Future obligations (not yet started) are deleted entirely.
  • Current obligation is shortened to end at the deactivation date. The daily rate remains unchanged — revenue recognition simply stops. Any remaining deferred income stays on the balance sheet as a liability until it is resolved through a credit, refund, or reconciliation payment.

This follows IFRS 15 — revenue is only recognised for service that was actually delivered. The remaining deferred income represents the publisher's obligation to return the unearned portion to the customer.

Reactivation After Late Invoice Payment

When an invoice-paid subscription is deactivated because the grace period expired and the customer later pays the outstanding renewal invoice, the subscription is reactivated and revenue recognition resumes.

The flow is:

  1. Renewal invoice sent — a performance obligation is created for the renewal period, and deferred income is recorded.
  2. Grace period expires — the subscription is deactivated. The obligation is shortened to the deactivation date and revenue recognition stops.
  3. Customer pays the invoice late — the payment is recorded (DR Bank / CR Receivable). The subscription is reactivated with a new service end date.
  4. Revenue recognition resumes — the obligation is extended to the new end date. The remaining deferred income is spread over the resumed service period at a recalculated daily rate.

The deactivation gap (the period between deactivation and reactivation) has no revenue recognition — no service was delivered during that time.

Example: A monthly invoice subscription renews for March at 90.00 SEK net over 30 days (3.00 SEK/day). The customer does not pay. After 10 days, the grace period expires and the subscription is deactivated on Mar 10. The obligation is shortened from Mar 30 to Mar 10. Ten days later the customer pays, and the subscription is reactivated through Apr 9 — giving the customer their remaining 20 service days.

Period Service days Daily rate Revenue
Mar 1 – Mar 10 (active) 10 3.00 30.00
Mar 11 – Mar 20 (deactivated) — — —
Mar 21 – Apr 9 (reactivated) 20 3.00 60.00
Total 30 90.00

The customer receives their full 30 service days despite the 10-day deactivation gap. The remaining 60.00 SEK of deferred income is spread over the 20 remaining service days at the same daily rate (3.00 SEK/day). Revenue already recognised during the first 10 days is preserved.

Upgrades and Downgrades

When a customer upgrades or downgrades their subscription, the obligation is adjusted based on the price difference and remaining service days. Already-recognised revenue is preserved — only the future daily recognition amount changes.