Revenue Recognition Performance Obligations APIPrivate preview

Overview

Performance obligation fulfillment is an important part of revenue recognition in accounting and finance. It refers to the completion of a transaction in which the seller has delivered the goods or services promised to the customer, and can recognize revenue for the sale. There are several scenarios where fulfillment occurs and revenue can be recognized, including but not limited to:

• Delivery of tangible goods: Fulfillment occurs when the physical goods have been shipped to the customer and they’ve taken possession of the goods. The delivery of the goods confirms that the customer has received the promised benefit, and therefore you can recognize the revenue from the sale.
• Performance of a service: In the case of a service-based sale, fulfillment occurs when the service has been performed and the customer has accepted the service. After the customer has accepted the service, you can recognize the revenue.
• Prepayment: A customer pays for a service or goods in advance of receiving the actual service or goods. You can recognize the revenue from the pre-payment over time as the service is delivered or the goods are used.

This guide explains how to use the Stripe Revenue Recognition Performance Obligations API to achieve accurate revenue reporting.

Setup

This example uses a product named “Prepaid package.” Create the product as a Stripe product—call it “Product Prepaid package.”

Under the Product Prepaid package, a create a Price for one unit. The price is 1 USD per unit. Call the price “Prepaid package.”

Say you bill a customer for a 100 USD Product Prepaid package, which includes a Price Prepaid package for 100 units. You want to defer the 100 USD upon invoicing and to recognize it based on the usage.

Create a subscription or an invoice

Now you can set up a subscription or a standalone invoice to bill the customer.

For a subscription, you’ll need to add a subscription item whose price is Price Prepaid package for 100 units.

For an invoice, you’ll need to add an invoice item whose price is Price Prepaid for 100 units.

Create a Revenue Recognition rule

To defer the revenue upon invoicing, you’ll need to create a Revenue Recognition rule. If no fulfillment events are ever sent, the revenue will be recognized entirely over the specified period, which defaults to one year.

Record usages

You can record usages through the API.

If you were to create an invoice on June 1, 2022, and 10 units are used on July 29, 2022, you would send the below API request:

curl https://api.stripe.com/v1/revenue_recognition/performance_obligations \
  -u "
sk_test_BQokikJOvBiI2HlWgH4olfQ2
:" \
  -d "target[type]"=invoice_line_item \
  -d "target[invoice_line_item]"=il_AAA \
  -d "period[start]"=1659078000 \
  -d amount=1000 \
  -d currency=usd

Reporting

Before fulfillment

If you download the debits and credits reports in June 2022, the following is what you would see. Because no usage is recorded yet, the whole invoice line item will be deferred and recognized 12 months later.

Partial fulfillment

With the usage recorded in the section above, the reports would look like the following in July 2022:

Full fulfillment

Suppose another usage is recorded on Aug 10, 2022 with the remaining amount (90 USD). The deferred revenue will be converted to revenue completely in Aug 2022: