- Accrual accounting
- Recording revenue when it's earned and costs when they're incurred, regardless of when cash moves. Most SaaS businesses with annual plans or prepaid costs need accrual books to see accurate monthly results. Read the guide
- ARPA (average revenue per account)
- Recurring revenue divided by the number of paying customers, usually measured per month. A key input to LTV. Read the guide
- ARR (annual recurring revenue)
- The annualized value of recurring subscription revenue, usually MRR multiplied by twelve. A run-rate, not a forecast. Read the guide
- ASC 606
- The revenue recognition standard under US GAAP, issued by the FASB. It uses a five-step model to decide when and how much revenue to recognize from customer contracts. Read the guide
- Burn rate
- The rate at which a company spends cash. Gross burn is total cash out per month; net burn is cash out minus cash in from operations. Read the guide
- CAC (customer acquisition cost)
- Total sales and marketing costs in a period divided by the number of new customers acquired in that period. Fully loaded CAC includes salaries and tools, not just ad spend. Read the guide
- Cash basis
- Recording income when it's received and expenses when they're paid. Simple and close to the bank balance, but it distorts monthly results when customers prepay. Read the guide
- Churn
- The rate at which customers (logo churn) or recurring revenue (revenue churn) are lost in a period. Read the guide
- Clearing account
- A temporary account in the books used to hold transactions before they settle. A Stripe clearing account records gross sales, fees, refunds, and payouts so the Stripe balance can be reconciled. Read the guide
- COGS (cost of goods sold)
- For SaaS, the direct costs of delivering the service, such as hosting, third-party APIs, payment processing, and customer support. Also called cost of revenue. Read the guide
- Deferred revenue
- Payments received for service not yet delivered, recorded as a liability and released into revenue as the service is provided. Common with annual plans. Read the guide
- FRS 102
- The main financial reporting standard for companies in the UK and Ireland that don't use full IFRS. Its revenue section uses a five-step model based on IFRS 15 for accounting periods beginning on or after 1 January 2026. Read the guide
- Gross margin
- Revenue minus COGS, expressed as a percentage of revenue. It shows how much of each dollar of revenue is left to cover operating costs. Read the guide
- IFRS 15
- The international standard for revenue from contracts with customers, issued by the IASB. It uses the same five-step model as ASC 606. Read the guide
- LTV (customer lifetime value)
- An estimate of the gross profit a typical customer generates over their lifetime, often calculated as ARPA × gross margin ÷ churn rate. Read the guide
- Modified cash basis
- A hybrid of cash and accrual bookkeeping: mostly cash, with accrual-style adjustments for large or long-term items. Read the guide
- Month-end close
- The routine of reconciling accounts, recording adjustments such as deferred revenue, and checking the books at the end of each month so the period's numbers are complete. Read the guide
- MRR (monthly recurring revenue)
- The normalized monthly value of active recurring subscriptions. Annual plans count at one twelfth of their value; one-off fees are usually excluded. Read the guide
- NRR (net revenue retention)
- Recurring revenue retained from existing customers over a period, including expansion and net of contraction and churn, as a percentage of starting revenue. Read the guide
- Payout
- A transfer from a payment platform such as Stripe to your bank account. It's the net of many transactions, after fees, refunds, and disputes. Read the guide
- Revenue recognition
- The rules for when and how much revenue to record. For subscriptions, revenue is generally recognized over the period the service is provided. Read the guide
- Runway
- How many months a company can operate at its current net burn: cash balance divided by average monthly net burn. Read the guide
- Trial balance
- A list of every account in the books with its balance at a point in time, used to check the books balance before accounts are prepared. Read the guide
Definitions are general information. How a term applies to your company's accounts is a question for your accountant or CPA.