Accounting for SaaS Companies: Deferred Revenue, MRR and What Investors Check
SaaS accounting differs from ordinary small-business accounting in one big way: cash collected is not revenue earned. Annual plans create deferred revenue, Stripe payouts hide fees and refunds, and investors will test your MRR against your books. Here is how to get it right.
A software company can have a record month for cash and a flat month for revenue, and both numbers can be correct. Subscription businesses collect money before they earn it, and the books have to keep the two apart. This guide covers the parts of SaaS accounting that generic bookkeeping gets wrong.
How is revenue recognised for a SaaS company?
Under US GAAP, ASC 606 says revenue is recognised as the service is delivered, not when the customer pays. A $12,000 annual plan paid up front is $1,000 of revenue a month for twelve months. Setup or onboarding fees that are not a distinct service are spread over the contract too. Cash-basis books, which record the full $12,000 on day one, overstate the first month and understate the next eleven.
What is deferred revenue?
Deferred revenue is money you have collected for service you have not yet delivered. It is a liability on the balance sheet, because if you stopped providing the service you would owe it back. Each month a slice moves from deferred revenue to earned revenue. A growing deferred revenue balance is a healthy sign in SaaS: customers are prepaying.
What is the difference between MRR and revenue?
Monthly recurring revenue is an operating metric: the normalised monthly value of active subscriptions. GAAP revenue is an accounting figure. They differ because MRR ignores one-time fees, usage overages, mid-month starts and credits. Investors expect the two to reconcile. If your dashboard says $80,000 of MRR and your profit and loss says $61,000 of subscription revenue, you need to be able to explain every dollar of the gap.
How should Stripe payouts be recorded?
A Stripe payout is net: gross charges, less refunds, less disputes, less Stripe fees. Booking the deposit as revenue understates sales and hides processing costs, which for SaaS are usually around 3% and worth seeing. Record gross revenue, refunds and fees separately and clear them against the payout, either through a clearing account or a sync tool. Annual and monthly plans in the same payout still need splitting between earned and deferred.
Do SaaS companies have to charge sales tax?
In many states, yes. Roughly half of US states tax SaaS in some form, and economic nexus rules mean you can owe tax in a state once your sales there pass its threshold, commonly $100,000 a year. Tracking revenue by customer state from day one is what makes this manageable. Our state-by-state SaaS sales tax guide covers which states tax what.
Which costs belong in SaaS cost of goods sold?
Hosting, third-party software embedded in the product, payment processing, and the customer support and customer success staff who keep the service running. Engineering that builds new features is research and development, not cost of sales. Getting this split right matters because gross margin is the first number an investor looks at, and most SaaS companies are expected to show 70% to 85%.
What about capitalising software development and R&D tax rules?
For book purposes, some development costs can be capitalised once a project reaches the application development stage. For US tax, Section 174 has required domestic research and software development costs to be amortised rather than deducted immediately for tax years from 2022, although legislation in 2025 restored immediate expensing for domestic research going forward. The rules have moved more than once, so confirm the current treatment with your tax preparer before you file. The R&D tax credit remains available and startups can apply part of it against payroll tax.
What do investors check in due diligence?
- Accrual-basis financials with revenue recognised properly
- A deferred revenue schedule that ties to the balance sheet
- MRR, churn and net revenue retention that reconcile to billing data
- Gross margin with a defensible cost of sales
- Sales tax exposure by state
- Clean payroll, contractor and equity records
Cloud Accountants keeps books for SaaS and software companies: deferred revenue schedules, Stripe reconciliation and investor-ready reporting on QuickBooks Online and Xero. Send view-only access for a free books review to see how your file holds up.
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