Let’s say that a SaaS customer pays for their entire one-year subscription in cash at once, what would revenue look like in cash-based and accrual accounting?

Okay, this one is going to be long so buckle up. There are a lot of variations of this question so we made it a bit more complicated with the hope of covering multiple topics. Also, if it’s not obvious that I was a tech banker it should be now.

Anyways, this is a Deferred Revenue situation. Let’s say that the customer made the $120 purchase in March but would not go live (services rendered) until April.

This is how the statements would change at the time of purchase in Accrual:

• Balance Sheet: Deferred Revenue + $120, Cash + $120
• Income Statement: Unchanged
• Cash Flow Statement: Cash from Operating Activities + $120

Here is how they would look in Cash Based:

• Balance Sheet: Cash + $120, Retained Earnings + $120
• Income Statement: Revenue + $120

In essence, the difference between these two are that Cash Based recognizes line items when they are paid for / paid and Accrual recognizes line items when services were actually rendered / costs used.