AS | Ankit Sarawagi|Founder, CFOmatrix·July 2026·11 min read | Policy + cut-off |
- Recognise on delivery, not on invoice or on payment. Cash timing and revenue timing are two different things.
- Ind AS 115 is a five-step model: contract, performance obligations, transaction price, allocation, recognise as delivered.
- Cut-off is the risk zone. At each period end, do not pull next period’s revenue in, and do not miss this period’s.
- Deferred revenue is billed-not-yet-delivered (a liability); unbilled revenue is delivered-not-yet-invoiced (an asset).
- Write the policy down once, apply it consistently, and keep the contract, policy and workings as your audit trail.
| Delivered The trigger for revenue, not invoiced or paid | 5 steps The Ind AS 115 model, from contract to recognition | 1 policy Written once, applied the same way every period |
Why Revenue Is a Top Audit Focus
Revenue is the first number every investor, lender and auditor reads, and it is the number most open to being nudged. Book a January sale in December and profit shifts between years; recognise an advance before you deliver and the top line looks bigger than the business really is. Because the temptation and the impact are both large, auditors treat revenue as a high-risk area by default and test it harder than almost anything else on the accounts. A tidy revenue recognition policy and a disciplined cut-off routine are how a lean startup turns that scrutiny into a quick pass. This SOP is the process; the matching revenue recognition policy template is the rule it applies, and the post sits inside our finance SOPs and controls guide for startups.
Invoice ₹12 lakh in April, book all ₹12 lakh as April revenue. April looks like a blockbuster; the next eleven months look empty. The numbers swing wildly and none of them are true.
Collect the ₹12 lakh in April, hold it as deferred revenue, and recognise ₹1 lakh each month as you serve. Revenue is smooth, matches the work, and ties to reality.
The Principle and the Ind AS 115 Model
The principle fits in one line: recognise revenue as you satisfy your promise to the customer. Deliver a one-off project and you recognise it on delivery; run a subscription or a support contract and you recognise it evenly over the period you serve; work to milestones and you recognise each milestone as it is completed. Ind AS 115, the Indian standard for revenue from contracts with customers (aligned to global IFRS 15), turns that principle into a repeatable five-step model.
“The mistake I see most is a founder treating the invoice as the moment revenue happens. It is not. The invoice is a bill. Revenue happens when you deliver the promise behind that bill, and once a founder internalises that, cut-off stops being confusing.”
Ankit Sarawagi, from building finance functions at growing startupsCut-off at Period End: Right vs Wrong
Cut-off is making sure each rupee of revenue lands in the correct period. At every month, quarter and year end you draw a line and check two things: you have not pulled next period’s revenue into this one, and you have not missed revenue you actually earned this period. This is where restatements come from, so it is worth a short, deliberate routine at each close rather than a guess.
| Situation at 31 March | Wrong call | Correct treatment |
| Service delivered in March, invoice raised in April | Book in April when invoiced | Recognise in March as unbilled revenue; it was earned in March |
| Advance collected in March for April delivery | Book as March revenue because cash came in | Hold as deferred revenue; recognise in April on delivery |
| Annual plan billed 1 March for the year ahead | Book the whole year in March | Recognise one month in March; defer the other eleven |
| Invoice raised 30 March for work to be done in April | Book in March to make the month look better | Defer; nothing was delivered yet, so no revenue yet |
| Milestone 2 of 3 completed and signed off in March | Wait until the whole project is invoiced | Recognise milestone 2’s share in March; it is satisfied |
The most damaging cut-off error is pulling April’s revenue into March to hit a target or dress up a year-end number for a raise. Auditors test the last and first few days of the year specifically for this, tracing invoices around 31 March to their delivery evidence. It is a fast way to trigger a restatement and lose credibility in diligence, for a number that reverses the next month anyway.
Cut-off is not a standalone task; it is a step in every close. The full sequence of schedules, reviews and sign-offs sits in the monthly close SOP, where the deferred and unbilled schedules below are two of the standard workings you lock before the numbers go out.
Deferred and Unbilled Revenue
These two accounts exist purely because cash timing and delivery timing rarely line up. Get them right and your revenue matches your work every month; ignore them and your top line lurches around with your billing. They are mirror images of each other.
Billed or collected, not yet delivered. You owe the customer the service, so it is a liability, not revenue, until you earn it.
Example: ₹12 lakh annual plan collected upfront sits here, releasing ₹1 lakh into revenue each month.
Delivered, not yet invoiced. You have earned it and the customer owes you, so it is an asset (also called accrued revenue).
Example: a March project delivered but invoiced in April is recognised in March and sits here until billed.
Deferred revenue is quietly a good sign: it is cash customers have already handed you for services you will deliver later, which is why subscription businesses can run on negative working capital. Track it as a schedule you can reconcile, not a number you plug, and it doubles as evidence of committed future revenue when you talk to investors.
The Written Policy and Audit Trail
Everything above only holds up if it is written down and applied the same way every period. A revenue recognition policy does not need to be long. One page that states, for each type of sale you make, exactly when you recognise the revenue is enough to remove judgement calls at close and keep your accounts consistent. It is also one of the first documents an auditor or diligence team asks for.
Startups rarely get caught for having the wrong revenue; they get caught for being unable to show why a number is right. When the contract lives on the customer account, the policy is written once, and the workings sit in the close file, the evidence is a byproduct of doing the work, not a Q4 scramble. The contract half of this trail starts at the customer and credit onboarding SOP, where the signed agreement and terms are captured before the first invoice ever goes out.
Lean Now, When to Add a Step
For a small team with a handful of contract types, this whole SOP is a one-page policy, two simple schedules and a five-minute cut-off check at each close. You add machinery only when the mix of contracts genuinely outgrows what one person can hold in a spreadsheet, not because a larger company does it that way.
- One-page policy covering each sale type
- Deferred and unbilled kept as simple schedules
- Cut-off check as a step in the monthly close
- Finance prepares, founder reviews at month-end
- Bundled contracts multiply: add formal price allocation across obligations
- Usage or milestone billing grows: automate the deferred and unbilled schedules in a billing tool
- You move onto Ind AS or approach a raise: get an auditor to review the policy
- Volume rises: a dedicated revenue owner runs the close cut-off
Write the policy, keep the two schedules and run the cut-off check every close, and revenue stays the one number on your accounts nobody has to argue about, which is exactly the outcome the whole finance SOPs and controls series is built to produce.
Frequently Asked Questions
When do I recognise revenue?
You recognise revenue when you deliver, not when you invoice and not when you get paid. The test is whether you have satisfied your promise to the customer. For a one-off delivery you recognise it when the service is delivered or the goods are handed over; for a subscription or a support contract you recognise it evenly over the period you serve; for a milestone contract you recognise it as each milestone is completed. Invoicing and payment are cash events that can happen before, at, or after delivery. Revenue follows delivery, and that gap between the two is what deferred and unbilled revenue capture.
What is Ind AS 115?
Ind AS 115 is the Indian accounting standard for revenue from contracts with customers, aligned to the global IFRS 15 model. It replaced the older, simpler revenue rules and applies a single five-step model: identify the contract, identify the performance obligations (the distinct promises in it), determine the transaction price, allocate that price to each obligation, and recognise revenue as each obligation is satisfied. Companies on Ind AS must follow it; smaller companies on Accounting Standards follow AS 9, but the delivery-based principle is the same in practice, so a startup should apply this thinking early regardless of which framework it currently reports under.
What is revenue cut-off?
Cut-off is making sure each rupee of revenue lands in the correct period. At every month, quarter and year end you draw a line and check two things: that you have not pulled next period’s revenue into this one, and that you have not missed revenue you actually earned this period. Work delivered in March belongs to March even if you invoice it in April; an advance collected in March for April delivery belongs to April. Getting cut-off wrong is the single most common way startup accounts get restated, because it moves profit between periods and misstates the numbers investors and auditors rely on.
What is deferred revenue?
Deferred revenue is money you have billed or collected before you have delivered. Because you still owe the customer the service, it is a liability on your balance sheet, not revenue, until you earn it. Bill twelve lakh rupees for an annual plan on day one and you hold it as deferred revenue, then release one lakh into revenue each month as you serve. Its mirror image is unbilled revenue, also called accrued revenue, which is service you have delivered but not yet invoiced; that is an asset. Both exist purely because cash timing and delivery timing rarely match.
Why do auditors focus on revenue?
Revenue is the top line every investor and lender reads first, and it is the number most open to being inflated, whether by booking next period’s sales early, recognising an advance before delivery, or leaving in revenue that was never really earned. Auditors treat it as a high-risk area by default and test it hard: they check cut-off around the period end, trace revenue back to signed contracts and delivery evidence, and confirm your recognition policy is applied consistently. A clear written policy, a documented cut-off routine and the workings behind each entry are exactly what turns a stressful revenue audit into a quick one.
Do I need a written revenue-recognition policy?
Yes. Even a one-page revenue-recognition policy that states, for each type of sale you make, exactly when you recognise the revenue is worth having from early on. It removes judgement calls at close, makes your accounts consistent month to month, and is one of the first documents an auditor or diligence team asks for. The policy is the rule; the cut-off routine and the deferred and unbilled schedules are the process that applies it. Write it once, apply it the same way every period, and if you ever change it, document the change and restate comparatives so the numbers stay comparable.
This is general educational information for founders, current to mid-2026, drawing on the author’s experience building finance functions inside growing startups, and is not legal, tax or audit advice. The applicable framework (Ind AS 115 or AS 9), recognition treatment and cut-off judgements vary by company and contract and change over time. Verify your own position or consult a professional before acting on a specific matter.
The Monthly Close SOP
Finance SOPs and Controls: The Founder’s Guide
AS | Founder, CFOmatrix | Finance Strategy & Equity Compliance CFOmatrix is a knowledge platform focused on how finance actually works inside growing companies. This SOP draws on hands-on experience setting up right-sized revenue recognition, cut-off and deferred-revenue processes with an audit trail for lean startup teams. |