Why Your Bank Balance Doesn't Match Your P&L
Written by Aparna Devalla, CPA
Curated by Rubric Financial
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Cash Received vs Revenue Recognized
- When a customer pays an annual contract upfront, your bank balance increases by the full amount but revenue is recognized ratably over 12 months under accrual accounting.
- Deferred revenue (the liability on your balance sheet) represents cash collected for services not yet delivered. It is not revenue until earned.
- Conversely, recognized revenue from net-30 invoices appears on your P&L even though the cash has not yet arrived, and this creates accounts receivable.
- The gap between cash collected and revenue recognized can be significant for SaaS companies with annual contracts, making the bank balance a misleading indicator of performance.
Related Resources
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Startup AccountingDeferred Revenue Explained
Why annual SaaS contracts create a liability on your balance sheet, and what investors look for in your deferred revenue.
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GlossaryBookings vs Revenue vs Cash
Bookings = contracts signed (forward-looking). Revenue = service delivered (GAAP recognized). Cash = money received (bank balance).
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