Introduction

Subscription revenue accounting can be complex. Typically it involves several systems when using Adyen as a payment processor. This guide aims to streamline the process of accounting for revenue recognition and the order to cash cycle per ASC 606/GAAP. 

Adyen maintains all of the necessary data to record the cash portion of the order to cash cycle. Extracting these reports is the first step in the accounting process. See below for a summary of accounting that can be achieved from Adyen, compared to other common Billing and Payment systems used in the Subscription/SaaS industry.

Another useful resource for users of Adyen is the Reports and Payments lifecycle charge from their website here. The attached image below is useful for understanding the various steps in the payments cycle for Adyen. 

Data Extraction

To compile all necessary data for accurate accounting, up to 4 reports need to be downloaded from Adyen (note they can be manually or automatically ran):

1. Payment Accounting Report: Customer Area>Reports
   • The Payment accounting report includes Payments lifecycle status changes, events, and modifications for all transactions. You can use this report to see the costs associated with different statuses and perform invoice reconciliation. Used for Cash in Transit entries and fee accounting.  
2. Settlement Details Report: Customer Area> Reports > Settlement details
   • You get a settlement from Adyen when a batch closes. See each payment, refund, and chargeback in a single payout batch and costs for each transaction. This is the most granular report. 
3. Dispute Report: Customer Area> Reports > Settlement details
   • This report helps monitor disputes, as well as correctly record dispute and dispute reversal entries. 

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Key Data Limitations to note:

1. Adyen is only a payment processor, as such, you will need to ensure a link between the payment/settlements (and refunds/chargebacks) and the origin invoice for appropriate ASC 606 accounting. 
2. Manual revenue recognition and order to cash accounting of Adyen is possible, but time consuming - driven by data volume the amount of useful metadata you want to bring in for FP&A reporting. Typically this becomes untenable around $10m-15m ARR. 

Accounting - Journal Entries

Key Note - Adyen is a payment processing system, as such Revenue, Deferred Revenue, and AR entries will typically be driven by a different system. 

Journal Entries:

• Revenue Deferral: Dr. Accounts Receivable (AR), Cr. Deferred Revenue 
• Revenue Recognition: Dr. Deferred Revenue, Cr. Revenue 
• Discount Deferral: Dr. Provision for Discount, Cr AR
• Contra-Revenue Recognition: Dr Contra-Revenue, Cr. Provision for Discount
• Sales Tax Accrual: Dr. AR, Cr. Sales Tax Liability

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Payment Accounting Report

The key record types on this report:

1. SentForSettle 
2. SentForRefund

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Journal Entries:

• Customer Pays: Dr. Cash in Transit (Adyen), Cr. AR
• Payment Processor Fees: Dr. Payment Processor (PSP) Fees, Cr. Cash in Transit (Adyen)

Steps:

1. Transactions with a status of SentForSettle and SentFor Refund are transactions that are in-transit.
2. Each transaction will also have a processing fee which is used to generate the fee expense entries. 

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Payout Reconciliation Report

The key record types on this report:

1. Settled (disbursed)
2. Refunded
3. Chargeback

Journal Entries:

• Adyen Payouts: Dr. Cash - Bank, Cr. Cash in Transit (Adyen)
• Payment Processor Fees: Dr. Payment Processor (PSP) Fees, Cr. Cash in Transit (Adyen)

Steps:

1. This report has the settlement entries that will tie to your bank deposits. The in transit record can be linked (Vlookup) by the PSPReference to the original payment detail. 
2. This report will also contain bulk fees for the month. 
3. This report also has the fX rate needed for FX entries if you do international transactions. 

Refunds

Journal Entries:

• Dr. AR, Cr. Cash in Transit (Adyen) 
• Dr. Revenue/Contra Revenue, Cr. Deferred Revenue
• Dr. Cash in Transit (Adyen), Cr. PSP Fees 

Steps:

1. VLOOKUP refunded payments by the modification reference. This allows for the proper reversal of the cash entries, as well as allow you to trace through to the original sale revenue offsets.

Dispute Report

The key dispute record types for this accounting are:

1. Chargeback
2. ChargebackReversed
3. SecondChargeback

Disputes - Initiated/Lost

Journal Entries:

• Dr. AR, Cr. Cash in Transit (Adyen)
• Dr. Deferred Revenue, Cr. Revenue/Contra Revenue
• Dr. Cash in Transit (Adyen), Cr. PSP Fees

Steps:

1. The disputes link (vlookup) to the original payment via the Psp Reference. Note this report will need to be reviewed for chargebacks to determine status of initiated, won, or second chargeback. 
2. VLOOKUP disputed payments and related invoices for accurate revenue offset recording.

Disputes - Won

Journal Entries:

• Dr. Cash in Transit (Adyen), Cr. AR
• Dr. Deferred Revenue, Cr. Revenue/Contra Revenue
• Dr. PSP Fees, Cr. Cash in Transit (Adyen)

Steps:

1. You will need to pull several past months for won disputes and VLOOKUP the payments accordingly to offset previous reversals. This includes SecondChargeBacks

Adyen allows for the concept of a second chargeback, which allows for an extremely long dispute cycle. To perform correct dispute accounting, accountants need to monitor several months back of transactions for dispute accounting. 

Balance Platform Accounting

Adyen does allow for the concept of balance accounts to provide embedded payments as a service within a website or application. While most activity is off-balance sheet in nature, this will generate additional immediate revenue on the fees charged to balance accounts and additional Adyen fees related specifically to the operation of the balance accounts. 

Data Extraction

To compile all necessary data for accurate accounting, up to 3 reports need to be downloaded from Adyen (note they can be manually or automatically ran):

1. Balance Platform Accounting: Customer Area>Reports

• This report is a sub-ledger of all activity within your subsidiary balance accounts. As such, most activity is off-balance sheet and not relevant for accounting. The fees charged to customers at this level (when split is not enabled) are revenue and used for immediate revenue recognition.

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2. Balance Platform Fee Report: Customer Area> Reports

• This report is a summary report of all of the fees generated by activity within balance accounts. The fees here are immediate expenses if a split is not configured.  

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Accounting - Journal Entries

Balance Platform Accounting Report

The key record types on this report:

1. Type = Fee, Status = Fee

Journal Entries:

• Revenue Recognition: Dr. Platform Liability, Cr. Revenue 

Steps:

1. Each fee goes through several status’ as it flows through the transfer, ‘Fee’ is the final state with an actual accounting implication of receiving cash into the liable balance account. As such it can be used to record revenue and cash. 
2. This detail is at a customer balance level, so margin can be calculated.

Balance Platform Fee Report

The key record types on this report: 

1. All

Journal Entries:

• PSP Platform Fees: Dr. PSP Platform Fees, Cr. Platform Liability 

Steps:

1. These fees are all liabilities added to the merchant account owner unless this is split. As such these fees are recorded as expenses immediately. 
2. This detail is at a customer balance level, so margin can be calculated.
3. For a full list of fees for treatment and GL separation - see here

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Conclusion

Accurately accounting for your order to cash accounting from Adyen 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. 

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 Adyen data to get started today.

This white paper is designed to serve as a practical guide for accounting professionals navigating subscription revenue accounting.

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