Learn how to record Stripe revenue recognition and comply with ASC 606. This guide covers data extraction, journal entries, and best practices for accurate financial reporting. Written by Cody Leach, CPA.
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Subscription revenue accounting can be complex. While Stripe provides comprehensive data, it is scattered across various sections of the application. This guide aims to streamline the process of accounting for revenue recognition and the order to cash cycle per ASC 606/GAAP and facilitate margin analysis. This guide also includes how to account for Connected Accounts.
Stripe maintains all of the necessary data to record revenue according to ASC 606 correctly, unlike some other billing/payment tools, but extracting these reports is the first step in the accounting process. See above for a summary of accounting that can be achieved from Stripe, compared to other common Billing and Payment systems used in the Subscription/SaaS industry.
To compile all necessary data for accurate accounting, up to 4 reports need to be downloaded from Stripe (plus 1 additional for Connected Accounts):
See below for a functional guide to how these reports and items within the reports relate to one another.
Key Data Limitations to note:
Key Note - while under ASC 606 invoices are not technically what drive the deferred revenue and revenue recognition entries (contracts) do - Stripe does not differentiate and as such is the best (but not correct) source of revenue recognition. For simple billing models - this works, for more complex we recommend discussing how HubiFi can help solve this.
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Note: This is not the cash received for these transactions (that is platform earnings on the balance transaction report).
Stripe stores the start and end dates for subscriptions on invoice line items. As such, fairly common arrangements where a customer pays for a subscription in advance and receives monthly service have to be completed manually. For ways to automate this accurately, I recommend reaching out to HubiFi as we solve this problem.
The best identifier for revenue lines in Stripe is the invoice_line_items from invoices. To determine revenue segmentation, product is the best method. Each product_id should map to a revenue stream on the GL. Review monthly to ensure all product_ids are accounted for. Another check to complete is the Cash reconciliation.
Stripe allows setup of various product_ids and is treated as invoice_line_items, including local and regulatory taxes. Ensure these are accounted for as tax rather than revenue streams.
Credits can have their own product_ids. Ensure accurate identification and accounting.
Connected Accounts
Organizations are liable for disputes and refunds in the Connected Accounts if that account does not maintain an appropriate amount. As such, a reserve should be held on the balance sheet when Connected Accounts are offered and steps should be taken operationally to minimize the risk.
Stripe handles subscription changes by issuing an "unused time credit." Use this data to determine appropriate revenue and deferred revenue offsets. VLOOKUP unused time credits to the related invoice line item to find related revenue/deferred revenue to offset.
Accurately accounting for subscription revenue through Stripe requires a comprehensive approach to data extraction and journal entries and is highly manual. By following this guide, finance teams can ensure compliance with ASC 606/GAAP and achieve detailed margin analysis. Working closely with the team managing Stripe to maintain clean product_ids and a clean rev ops process will greatly facilitate the accounting.
Hubifi can significantly simplify this process by automating the data gathering, data cleaning, reconciliation, and eliminating the need for all the manual file creation entirely - automatically generating your journal entries and enrichment needed to analyze the data. Contact us to learn more about automating this process, or schedule a demo with your Stripe data to get started today.
This white paper is designed to serve as a practical guide for accounting professionals navigating subscription revenue accounting.
Accounting Automation | Product | Technical Accounting | Accounting Systems Nerd
A technology and automation focused CPA helping finance leaders bring their processes into the 21st century.If you're interested in talking finance systems - https://calendly.com/cody-hubifi Feel free to set up some time on my calendar. I like talking about this stuff too much