There are accounting rules (GAAP or IFRS) about what can be included in the revenue line in your income statement (or P&L), and also when that revenue is included (or recognized). Revenue recognition is not always when you receive cash from a customer. Revenue is matched to the moment goods or services are provided not when they are paid for, so this can be before, during, or after a cash payment.

Examples:

1. A customer pays you in advance for a 12 month subscription to your service. You receive the cash all at once (increasing your cash balance) and note the sale in your “Bookings” metric. However, in the financial statements it is NOT yet recognised as revenue. The customer has paid you money for future services so it is recorded as a “Customer Advance” in your Balance Sheet Liabilities (i.e. it is a debt you owe the customer). Each month that you provide the service 1/12th of the amount is subtracted from Customer Advances, and added to Revenues.
2. You sell a product to a customer who pays cash and leaves with the product. In this case revenue recognition matches cash received.
3. You provide the customer with the product or service and then invoice them for payment later, the revenue can be recognised even though no cash has been received. Instead the invoice amount is recorded in “Accounts Payable” on your Balance Sheet (i.e. it is an asset since they owe you money). When they pay the invoice, your cash balance is increased and Accounts Payable is reduced, but those have no impact on revenues.

Why it matters:

Revenues can only be recognised when the product or service has been provided. This ensures that the rewards for providing a product or service and the costs incurred in doing so are matched in the same accounting period.

Investors will be interested in your “Bookings” KPI and/or “Customer Advances” as those are an indication of future revenues that you have already been paid for. “Accounts Payable” tracks cash you hope to receive in future for products or services that have already been delivered and their revenues recognized.