Subscription Amendment
Overview
Many businesses offer multiple tiers for their subscription packages in order to fulfil the needs of different types of customers. For example, Hulu has an advertising-supported tier for $5.99, and an ad-free tier for $12.99.
Customers sometimes change their minds about the subscriptions they are on, whether it's to upgrade to a higher tier, or downgrade to a lower tier. Often this occurs happen during the middle of the subscription cycle.
During this process, multiple accounting journal entries will be created to represent the subscription amendments.
Configuration
Required parameters
| Fields | Description |
|---|---|
amount | amount of the line-item |
date | calendar date of when the amendment is initiated by customer |
Required accounts
| Account | Description |
|---|---|
revenue_account | asset account representing revenue. e.g. "Revenue" |
deferred_revenue | deferred revenue account, e.g. "Deferred Revenue" |
Walkthrough: Amendment with credit applied
Assume YouTube has two tiers of subscription plans, one is $30/month basic plan, and another is a higher tier $60/month premium plan.
On Nov 1st, John purchased a YouTube basic subscription and paid $30. A few days later on November 7th, John wanted to upgrade to the premium plan for more access and features. He requested to upgrade his subscription.
Event 1: John bought YouTube basic
When the payment is made on Nov 1st, all $30 is deferred revenue
| Date | Account | Debit Amount | Credit Amount |
|---|---|---|---|
| 11/01/2022 | Cash | 30 | |
| Deferred Revenue | 30 |
A series of daily journal entries should also be received to recognize revenue over the subscription period. service_start_date is November 1st. service_end_date is November 30th.
| Date | Account | Debit Amount | Credit Amount |
|---|---|---|---|
| 11/01/2022 | Deferred Revenue | 1 | |
| Revenue | 1 | ||
| 11/02/2022 | Deferred Revenue | 1 | |
| Revenue | 1 | ||
| ... | |||
| 11/30/2022 | Deferred Revenue | 1 | |
| Revenue | 1 |
Event 2: John request to upgrade his subscription. Credit is applied explicitly.
When John request to upgrade his subscription on November 7th, future revenues are reverted and a credit is issued to his account for the remaining days of the subscription.
$23 credit is issued to John's account.
| Date | Account | Debit Amount | Credit Amount |
|---|---|---|---|
| 11/07/2022 | Revenue | 23 | |
| Credit Liability | 23 |
Accelerate the remaining future revenue recognition
| Date | Account | Debit Amount | Credit Amount |
|---|---|---|---|
| 11/07/2022 | Deferred Revenue | 23 | |
| Revenue | 23 |
Cancel out all future revenue recognition for original subscription
| Date | Account | Debit Amount | Credit Amount |
|---|---|---|---|
| 11/07/2022 | Revenue | 1 | |
| Deferred Revenue | 1 | ||
| 11/08/2022 | Revenue | 1 | |
| Deferred Revenue | 1 | ||
| ... | |||
| 11/30/2022 | Revenue | 1 | |
| Deferred Revenue | 1 |
John paid $60 for the new subscription. Credit of $23 is explicitly applied to the purchase. In the invoice, it shows an invoice amount of $60, credit applied of $23, and subtotal of $37 is billed
| Date | Account | Debit Amount | Credit Amount |
|---|---|---|---|
| 11/07/2022 | Cash | 37 | |
| Credit Liability | 23 | ||
| Deferred Revenue | 60 |
A new premium subscription is initiated on November 7th.
| Date | Account | Debit Amount | Credit Amount |
|---|---|---|---|
| 11/07/2022 | Deferred Revenue | 2 | |
| Revenue | 2 | ||
| 11/08/2022 | Deferred Revenue | 2 | |
| Revenue | 2 | ||
| ... | |||
| 12/07/2022 | Deferred Revenue | 2 | |
| Revenue | 2 |
Event 2.1: John request to upgrade his subscription. Credit is applied implicitly.
Under similar conditions as event 2, sometimes the invoice issued only contains one line-item, the total after credit is applied. e.g. John is paying $60 for the new subscription. Credit of $23 is implicitly applied to the purchase. In the invoice, it shows an invoice amount of $37.
John pays for the new premium subscription. The credit of $23 is implicitly applied.
| Date | Account | Debit Amount | Credit Amount |
|---|---|---|---|
| 11/07/2022 | Deferred Revenue | 23 | |
| Cash | 23 |
Leapfin will then create the full $60 in deferred revenue
| Date | Account | Debit Amount | Credit Amount |
|---|---|---|---|
| 11/07/2022 | Cash | 60 | |
| Deferred Revenue | 60 |
Amortize $60 over the period of the subscription.
| Date | Account | Debit Amount | Credit Amount |
|---|---|---|---|
| 11/07/2022 | Deferred Revenue | 2 | |
| Revenue | 2 | ||
| 11/08/2022 | Deferred Revenue | 2 | |
| Revenue | 2 | ||
| ... | |||
| 12/07/2022 | Deferred Revenue | 2 | |
| Revenue | 2 |
How this is different
Compared with Event 1, Event 2 has no credit issued, so that the journal entries belongs to credit in Event 1 is moved to new line-item in Event 2. In both scenarios, the journal entry impact on the original leapfinLineItem is exactly the same.
Updated 4 months ago