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Startup Accounting

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.

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