Subscription pause
- Ian Fondrk (Unlicensed)
Overview
A subscription pause is a transaction scenario where the products or services provided as parts of a subscription are suspended for a period of time. Unlike subscription cancellation or refund, the suspension of products or services in a subscription pause is temporary and expected to be resumed in the near future. Upon resuming, the end date of the subscription period is often updated to extend the products & services that the customer has already paid for.
According to accounting principles, revenue recognition has to stop when products and services are suspended, and it should continue proportionally once the products and services are resumed.
Configuration
Required parameters:
Fields | Description |
|---|---|
| calendar date of when the subscription item is invoiced |
| full amount of the subscription item to be amortized |
| calendar date of when the amortization period starts. This date is included in amortization period. |
| calendar date of when the amortization period originally ends prior to the pause. This date is included in amortization period. |
| calendar date of when the subscription pause starts. This date is NOT included in pause period. (i.e. revenue will be recognized on this date) |
| calendar date of when the subscription pause ends. This date is NOT included in pause period. (i.e. revenue will be recognized on this date) |
| calendar date of when the amortization period ends after resuming from the pause. This date is included in amortization period. |
Required accounts:
Accounts | Description |
|---|---|
| account for Account Receivable |
| account for Deferred Revenue |
| account for Recognized Revenue |
Walkthrough
Event 1: subscription is invoiced
Assume an annual subscription item with amount = $365 is invoiced on date = 01/01/2022. The subscription period is from start_date = 01/01/2022 to end_date = 12/31/2022.
On the issuance date 01/01/2022, the following journal entry will be created to book the full amount.
Date | Account | DR | CR |
|---|---|---|---|
1/1/2022 |
| 365 |
|
|
|
| 365 |
In addition, a series of daily journal entries (i.e. one journal entry per day) will be created to recognize revenue between start_date = 01/01/2022 and end_date = 12/31/2022. The daily journal entry amount is calculated as the total amount divided by the number of days in the subscription period (i.e. 365 days in this example). For detailed rounding logic, refer to Linear recognition.
This series of daily journal entries represents the future revenue recognition schedule. Accumulatively, revenue of 31 will be recognized in January, 28 in February, 31 in March, etc.
Date | Account | DR | CR |
|---|---|---|---|
01/01/2022 |
| 1 |
|
|
|
| 1 |
01/02/2022 |
| 1 |
|
|
|
| 1 |
... |
|
|
|
12/31/2022 |
| 1 |
|
|
|
| 1 |
Event 2: subscription is paused
Assume the subscription is paused on pause_start_date = 1/31/2022. Upon the pause, a new series of journal entries will be created to counterbalance all future revenue recognition schedules. As a result, no revenue will be recognized after the pause_start_date (i.e. No recognition on and after 2/1/2022).
Date | Account | DR | CR |
|---|---|---|---|
02/01/2022 |
| 1 |
|
|
|
| 1 |
02/02/2022 |
| 1 |
|
|
|
| 1 |
... |
|
|
|
12/31/2022 |
| 1 |
|
|
|
| 1 |
The revenue recognition will stay paused indefinitely until a pause_end_date is set. At this point, $31 has been recognized in the revenue _account, and $365 - $31 = $334 remains in deferred_revenue_account.
Event 3: subscription is resumed
Assume the subscription is paused for 1 month and resumed on pause_end_date = 3/1/2022. The updated subscription end date is updated_end_date = 1/31/2023.
Upon the resumption, a third series of journal entries will be created to amortize the remaining balance of deferred_revenue_account (i.e. $334 in this example) between pause_end_date = 3/1/2022 and updated_end_date = 1/31/2023 (i.e. 337 days).
Date | Account | DR | CR |
|---|---|---|---|
03/01/2022 |
| 0.99 |
|
|
|
| 0.99 |
03/01/2022 |
| 0.99 |
|
|
|
| 0.99 |
... |
|
|
|
01/31/2023 |
| 0.99 |
|
|
|
| 0.99 |
The daily amount is calculated by $334 / 337 days = $0.99
Read here about the rounding treatment for sub-cent amounts.
Multiple pauses
Leapfin also supports multiple pauses on the same subscription. In such cases, each pause should contain the following information. In addition, pause periods should not overlap with each other.
Fields | Description |
|---|---|
| calendar date of when the subscription pause starts. This date is NOT included in pause period. (i.e. revenue will be recognized on this date) |
| calendar date of when the subscription pause ends. This date is NOT included in pause period. (i.e. revenue will be recognized on this date) |
| calendar date of when the amortization period ends after resuming from the pause. This date is included in amortization period. |
| unique identify for the pause. When there are multiple pauses, a unique id is required to distinguish between a new pause and updates on an existing pause. |
When handling multiple pauses, Leapfin will follow the logic below:
Upon
pause_start_date, all revenue recognition schedules in the future (i.e. afterpause_start_date) will be counterbalanced.Upon
pause_end_date, the remaining balance ofdeferred_revenue_accountwill be amortized linearly betweenpause_end_dateandupdated_end_date.