Booked, billed, collected, recognized — four different numbers that mean four different things.
Revenue recognition confuses first-time founders because there are four numbers that all sound like 'revenue' and all mean different things. Booked: contract signed. Billed: invoice sent. Collected: cash received. Recognized: GAAP revenue earned. ASC 606 defines when you can recognize revenue — usually ratably over the service period for SaaS, not upfront when the invoice is sent.
Booked (bookings): total contract value signed in the period. A 3-year, $300K contract is $300K in bookings when signed. Billed: invoices issued. If you bill annually, that same contract bills $100K/year. Collected: cash actually received (net of unpaid invoices). Recognized (GAAP revenue): the portion of billed amount earned in the period — for a $100K annual invoice paid Jan 1, you recognize ~$8,333/month.
1. Identify the contract with a customer. 2. Identify performance obligations (what you're delivering — often 'access to the platform for 12 months'). 3. Determine the transaction price. 4. Allocate the price to performance obligations. 5. Recognize revenue as performance obligations are satisfied. For most SaaS, this means ratable recognition over the subscription term, not upfront.
ARR (annual recurring revenue) is a forward-looking snapshot: sum of all active subscription MRR × 12 at a point in time. GAAP revenue is backward-looking: revenue earned during a period. They rarely match. A company that just closed a big deal has high new ARR but the GAAP revenue impact spreads over 12 months. Investors want both — ARR for the trajectory, GAAP for accounting reality.
When you bill $100K annually upfront and collect the cash, the accounting treatment: cash goes up by $100K (asset), deferred revenue goes up by $100K (liability). Each month, $8,333 moves from deferred revenue (liability) to recognized revenue (income statement). Deferred revenue on the balance sheet is a leading indicator of future GAAP revenue — investors watch it as a health signal.
Recognizing upfront: treating a $100K annual contract as $100K of revenue in month one violates ASC 606 and destroys your ability to pass an audit at Series B+. Confusing ARR with revenue: 'We hit $10M in revenue!' when you mean $10M ARR is technically wrong and undermines credibility with sophisticated investors. Not tracking bookings separately: obscures the actual sales trajectory hidden inside amortized GAAP revenue.
Monthly: new ARR, expansion ARR, churn ARR, ending ARR. Quarterly: bookings, billings, GAAP revenue, deferred revenue balance. Board decks typically lead with ARR trajectory (the growth story) and include a bridge to GAAP revenue for the audit trail. Investors care about both — ARR shows momentum, GAAP proves the numbers survive audit.
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