How revenue recognition, PCA and FAE work

Master revenue recognition with Fincome. Learn how to manage PCA and FAE amounts for accurate and compliant accounting.

To calculate the revenue recognized over a given period (a month, a quarter, a year), as well as the amounts of Unearned Revenue (PCA) and Accrued Income (FAE) at the end of that period, we first separately calculate the individual contributions of each invoice line to these different items before aggregating them.

1. Definition of revenue recognition

Revenue recognition follows strict accounting rules and consists of recognizing revenue when it is actually earned, that is, when a service is provided. Unlike MRR, revenue recognition is prorated, which means it is calculated based on the period during which the service was actually provided.

a) For a one-time invoice line

Contribution to revenue for the period:

A one-time invoice amount is recognized as revenue if the issuance date of that invoice falls within the analyzed period.

$$Recognized revenue = Invoice amount$$

b) For a recurring invoice line

Contribution to revenue for the period:

$$Recognized\:revenue=Subscription\:amount×\frac{Days\:of\:service\:in\:the\:month}{Total\:number\:of\:days\:in\:the\:month}$$

Contribution to FAE and PCA

Note : Any one-time invoice does not generate PCA and FAE; only subscription invoices contribute to them.

CONDITIONS	PCA	FAE
Invoice issuance date < End of service period	Invoice line amount excluding tax – cumulative recognized revenue*	0
Invoice issuance date > End of service period	0	Cumulative recognized revenue*

*Cumulative recognized revenue = cumulative value of contributions over all periods prior to and including the period considered.