Under AASB 15, subscription revenue is recognized as you deliver the service, not when the customer pays. For most memberships and software subscriptions, the customer receives the benefit over time, so revenue is spread evenly across the subscription period. Payments received in advance sit on the balance sheet as a contract liability (deferred revenue) until earned.
Key takeaways
- AASB 15's core principle: recognize revenue to depict the transfer of promised goods or services to customers.
- Most subscriptions are recognized over time, month by month, because the customer receives and consumes the benefit as you perform.
- An A$1,188 annual plan (A$1,080 ex GST) is about A$90 of revenue a month, not A$1,080 in the month it's paid.
- Setup fees, free months, bundles and prepaid credits each need specific treatment. Don't book them all upfront.
- GST and income tax timing don't always follow AASB 15. Keep the three separate.
Picture a business owner at the end of June.
They've just run their best campaign ever. Two hundred customers took the annual plan at A$1,188 each. That's more than A$237,000 in the bank in a single month.
They tell their accountant it was a record month.
The accountant says June revenue was about A$18,000.
Both of them are right. And understanding why is one of the most useful things a subscription business owner can learn.
In The Subscription Playbook I wrote that annual billing "creates more certainty." It does. It also creates a gap between the cash you hold and the revenue you've earned. That gap is what AASB 15, the Australian accounting standard for revenue, is about.
This is a plain-English introduction as at October 2026. It's general information, not accounting advice. The standard has plenty of detail I haven't covered, so check how it applies to your contracts with your accountant.
What is revenue recognition for subscriptions?
Revenue recognition is the set of rules for when revenue goes into your profit and loss.
AASB 15 Revenue from Contracts with Customers sets the core principle in paragraph 2: an entity shall recognize revenue "to depict the transfer of promised goods or services to customers," in an amount reflecting what it expects to be entitled to.
For a subscription, you transfer the service a little at a time. So you recognize revenue a little at a time.
That's the whole idea. The rest is detail.
Cash, billings, revenue and ARR: four different numbers
Before the steps, it helps to see the four numbers side by side for that June annual sale. (One customer, A$1,188 including GST, paid 1 June.)
| Number | June | July | What it tells you |
|---|---|---|---|
| Cash received | A$1,188 | A$0 | Money in the bank, including GST |
| GST owed to the ATO | A$108 | A$0 | Reported in the BAS period you were paid |
| Revenue (AASB 15) | A$90 | A$90 | What you earned by delivering the service |
| ARR | A$1,080 | A$1,080 | The recurring amount, ex GST, annualized |
None of these is wrong. They answer different questions. Trouble starts when people use one to answer another's question. If you want to go deeper on the metrics side, see ARR and MRR.
What are the five steps of AASB 15 for a subscription?
AASB 15 works through five steps. Here they are, applied to a typical subscription.
1. Identify the contract. Your subscription terms, accepted at sign-up, plus the plan the customer chose. Each subscription is a contract with a customer.
2. Identify the performance obligations. What have you promised? Usually ongoing access to a service. But a setup service, a device, onboarding or a bundle of separate products might be distinct promises too.
3. Determine the transaction price. What you expect to be entitled to, excluding GST. Discounts, free months and usage-based fees all affect it.
4. Allocate the price to each performance obligation, based on their stand-alone selling prices, if there's more than one.
5. Recognize revenue when (or as) each obligation is satisfied. For most subscriptions, that's over the subscription period.
When is subscription revenue recognized over time?
Paragraph 35 of AASB 15 says revenue is recognized over time if, among other tests, "the customer simultaneously receives and consumes the benefits provided by the entity's performance as the entity performs."
That describes most subscriptions:
- Software and SaaS: the customer uses the platform every day of the term.
- Memberships: access to a gym, a club or member benefits.
- Maintenance and peace-of-mind plans: standing ready to service, inspect or repair.
- Content subscriptions: ongoing access to a library.
A subscription box is often different. Each box is delivered at a point in time, so revenue is typically recognized as each box is delivered, not evenly by day.
A worked example: the annual plan
Here's the journal for that A$1,188 annual plan, paid 1 June.
Annual plan journals (illustrative)
1 June, when paid:
- Debit Bank A$1,188
- Credit GST payable A$108
- Credit Contract liability (deferred revenue) A$1,080
End of each month, for 12 months:
- Debit Contract liability A$90
- Credit Subscription revenue A$90
After 12 months the contract liability is zero, and you've recognized A$1,080 of revenue, spread evenly.
AASB 15 calls that balance a contract liability: an entity's obligation to transfer goods or services to a customer for which it has already received consideration.
It's a liability because you still owe the service. That's why I tell owners not to spend it as profit, and why buyers adjust for it in a sale. More on the cash side in subscriptions and cash flow.
Are your subscription accounts buyer-ready?
Get a BPAG adviser to check how you recognize subscription revenue, track deferred revenue and report MRR, so your numbers hold up for lenders, investors and buyers.
How do you treat setup fees, free months and discounts?
These are the places I see most mistakes.
Setup and onboarding fees
A non-refundable setup fee feels like revenue on day one. Often it isn't.
AASB 15 has specific guidance on non-refundable upfront fees. The key question is whether the setup activity transfers a distinct good or service to the customer. If it's just administrative work you need to do to start the subscription, it usually isn't a separate obligation. The fee becomes part of the subscription price and is recognized over the period you provide the service, which can be longer than the first contract term if the customer has a right to renew without paying it again.
Free months and intro discounts
If a customer signs a 12-month contract and gets the first two months free, the transaction price is what they'll pay across the contract. Spread it across all 12 months of service. Don't recognize zero for two months and full price for ten.
Bundles with hardware or services
If you sell a device plus a subscription, or implementation plus software, you may have more than one performance obligation. Allocate the price to each based on stand-alone selling prices, then recognize each part when it's delivered. The device might be recognized at delivery; the subscription over time.
Usage fees and overages
For hybrid pricing, a base fee plus usage, the usage component is variable. In many cases it's recognized as the usage occurs. Contracts with tiered rebates, minimums or caps need more care, so get advice on those.
How do prepaid credits work under AASB 15?
This matters more every year, because so many AI products now sell credit-based pricing.
When a customer buys a pack of credits in advance, you've received cash for services you haven't delivered yet. That's a contract liability. You recognize revenue as credits are used.
Two questions to discuss with your accountant:
- Unused credits that expire. If you expect a portion of credits never to be used (often called breakage), the standard has specific guidance on when you can recognize that amount. You can't just book it upfront because you hope people forget.
- Bonus or rollover credits. Options that give customers a material right, like discounted future credits, can be a separate performance obligation (AASB 15 paragraph 26(j)).
If your pricing promises "credits never expire," your contract liability can grow for a long time. That's worth knowing before a buyer finds it.
What about sales commissions?
If you pay commissions to win subscription contracts, AASB 15 generally requires incremental costs of obtaining a contract to be recognized as an asset and expensed over the period the customer benefits, if you expect to recover them.
There's a practical expedient in paragraph 94: if that amortization period would be one year or less, you can expense the cost when incurred. For monthly plans with long expected customer lifetimes, the expedient may not apply.
How is tax different from AASB 15?
Three timing rules sit side by side, and they don't always agree.
| When it's counted | For an annual plan paid 1 June | |
|---|---|---|
| AASB 15 revenue | As you deliver the service | Spread over 12 months |
| GST | Cash basis: when paid. Accruals: earlier of invoice or payment | Generally all in the BAS period including 1 June |
| Income tax | Depends on your circumstances; income for services paid in advance may be treated as derived as it's earned | Ask your tax agent |
The GST side is covered in GST on subscriptions and SaaS. Income tax treatment of prepaid income can be complex, so don't assume it follows your accounting.
Common revenue recognition mistakes in subscription businesses
- Booking annual plans as revenue upfront. It inflates this year's profit and hides next year's obligation.
- Including GST in revenue. Revenue is ex GST.
- Recognizing setup fees immediately when they aren't a distinct service.
- Ignoring free months when calculating monthly revenue.
- Treating prepaid credits as earned when they're sold.
- Confusing MRR with revenue. They're related, not identical.
- No reconciliation between billing system, MRR report and accounts.
When does all this matter most?
For a tiny monthly-only business, recognized revenue and cash are almost the same. The stakes rise fast when you:
- sell annual or multi-year plans;
- charge setup or implementation fees;
- sell credits, bundles or hardware;
- raise money, take on debt or prepare to sell.
Buyers will rebuild your revenue under AASB 15 during due diligence. If your accounts already do it properly, your numbers hold up. If they don't, every adjustment feels like a surprise, and surprises cost money. That's covered in valuing an Australian SaaS business.
What to do next
- Check your chart of accounts has a contract liability (deferred revenue) account.
- List every type of charge you bill: monthly, annual, setup, usage, credits, bundles.
- Decide, with your accountant, how each is recognized, and write it down.
- Reconcile billing, MRR and revenue at the end of each month.
- Review whether your annual discount is worth the deferred revenue it creates, using the annual discount calculator.
For the bigger picture on running a subscription business in Australia, see the Australian guide.
Free Subscription Profit Review
Australian business owners can book a free 30-minute review with a BPAG Accountants adviser. An honest conversation about:
- whether a subscription model could work for your business
- how recurring revenue could cover your fixed costs each month
- how it could lift what your business is worth
No cost, no obligation. General information only until we understand your situation.
Frequently asked questions
Do small businesses have to follow AASB 15?
AASB 15 applies to entities preparing financial statements under Australian Accounting Standards. Many small private businesses aren't required to lodge general purpose financial statements, so their obligation depends on their structure, size and who relies on their accounts. Even so, lenders, investors and buyers expect subscription revenue to be recognized this way, so it's worth adopting the approach early. Ask your accountant what applies to you.
Is deferred revenue the same as unearned revenue?
In everyday use, yes. Both describe payments received for goods or services you haven't delivered yet. AASB 15 uses the term contract liability, defined as an entity's obligation to transfer goods or services to a customer for which it has received consideration, or an amount is due. Your accounting software may label it deferred revenue, unearned income or income in advance.
How do I recognize revenue for a monthly subscription billed mid-month?
Strictly, a plan billed on the 15th covers half of this month and half of next, so part of the payment is deferred at month-end. Many businesses with large numbers of small monthly subscriptions use a portfolio approach, which AASB 15 permits where the result wouldn't differ materially from contract-by-contract accounting. Agree a consistent method with your accountant and document it.
What happens to revenue when a customer cancels an annual plan early?
It depends on your terms and the customer's rights. If you refund the unused portion, you reduce the contract liability and pay the cash back, so no further revenue is recognized. If you're entitled to keep the payment and have no further obligation, you may recognize the remaining balance. Make sure your cancellation terms comply with consumer law before relying on keeping prepayments.
Does AASB 15 change my MRR?
No. MRR and ARR are management metrics based on the recurring amount customers are paying, normalized to a month or year. AASB 15 revenue is what you've earned in the period under accounting standards. They're often close for monthly plans and differ for annual plans and one-off fees. Report both, and reconcile them, so buyers and lenders can see how they connect.
General information only, current as at October 2026. It isn't legal, tax or financial advice and doesn't consider your circumstances. Speak to a qualified adviser before acting.
Talk it through with a BPAG adviser
Free for Australian business owners: a 30-minute Subscription Profit Review on whether a subscription suits your business.
Robert Coorey, MBA
Robert is the author of The Subscription Playbook and Feed a Starving Crowd and a Director at BPAG Accountants in Sydney. More about Robert.
Sources
- AASB 15 Revenue from Contracts with Customers (compiled version), Australian Accounting Standards Board
- ATO, Choosing an accounting method (GST cash and non-cash basis)
- ATO, Tax invoices
- The Subscription Playbook, Robert Coorey (2022), Chapter 3 (annual vs monthly)
Facts and prices checked 27 October 2026. Spotted something out of date? Tell us.