Recording Sales & Revenue
When to recognize revenue, how to handle invoices vs. cash sales, and the basics of deferred revenue.
Recognition vs. collection
Revenue is recognized when earned, not when paid. A SaaS customer who pays annually upfront produces deferred revenue, recognized 1/12 each month over the contract.
Sales tax is not revenue
If you collect sales tax, it's a liability owed to the state. Never book it as revenue. Set up a Sales Tax Payable account and remit it on schedule.
Refunds and discounts
Use contra-revenue accounts (Refunds, Discounts) instead of reducing gross revenue. This preserves your top-line for analysis and shows investors the gross-to-net story honestly.
Key takeaways
- Recognize revenue when earned, defer the rest.
- Sales tax collected is a liability, not revenue.
- Use contra-accounts for refunds and discounts.