Revenue recognition is the accounting rule that decides when money received from a customer counts as revenue, the income a company has earned. For a subscription, money received is not the same as revenue earned. The company earns the money gradually, as it provides the service. Revenue recognition software works out how much of each payment counts as revenue in each month. It is a part of subscription billing.
The rule in India is Ind AS 115, which follows the international standard IFRS 15. In the United States, the equivalent rule is ASC 606. All three say the same thing in principle: revenue is recorded when the company delivers what it promised, not when it is paid.
Until the service is delivered, the money is a liability, something the company owes. It is recorded as deferred revenue, which means money received for a service that the company has not yet provided. Each month, part of it moves from deferred revenue into revenue.
Say a software company in Ahmedabad sells a hospital an annual plan for ₹12 lakh, paid in full on 1 April. The price covers two promises. The first is setting up the software, worth ₹1.2 lakh, which is done in April. The second is a year of service, worth ₹10.8 lakh, or ₹90,000 a month. In April, the company's bank balance rises by ₹12 lakh. But its April revenue is only ₹2.1 lakh: the ₹1.2 lakh set-up plus one month's ₹90,000. The other ₹9.9 lakh is deferred revenue. Each following month, another ₹90,000 moves into revenue, until the last of it is recognised in March of the next year. Splitting one price between separate promises in this way is the hardest part of the rule.
Changes make it harder still. A customer may upgrade in the middle of the year, get a discount for a longer contract, or cancel and get a refund. Each change means the schedule must be calculated again. With 20,000 customers changing plans, this cannot be done reliably in spreadsheets. The old accounting ledger was built for one-off sales, where the invoice and the revenue are recorded on the same day.
The billing engine already knows every plan, upgrade and cancellation, so it can build each customer's revenue schedule automatically. At month-end, it sends the totals to financial close software and to the ERP. Auditors check these schedules carefully, because revenue recorded too early makes a company look more profitable than it is. Airlines face a similar problem with tickets sold months before the flight, handled by airline revenue accounting.