Expert accounting for iOS and Android apps. Navigate App Store/Google Play revenue recognition, 30% platform fees, user acquisition cost (UAC) capitalization, in-app purchases, subscription tracking, and international VAT/GST compliance.
Mobile app businesses face unique accounting complexities that require specialized expertise. From platform fee treatment to international tax compliance, we deliver clarity and accuracy.
Apple and Google take 15-30% of revenue. Should you recognize revenue gross (before platform fees) or net (after fees)? This decision affects your metrics, financials, and investor perception.
The Critical Question:
Are you the principal (selling to customers) or the agent (facilitating sales for the platform)? This determines gross vs. net reporting.
Gross Revenue (Principal):
If you control pricing, customer relationship, and delivery
• User pays $9.99 → Revenue: $9.99, Platform fee: $3.00 expense
• Higher revenue, lower margins
• Most common for apps with own branding
Net Revenue (Agent):
If platform controls significant elements
• User pays $9.99 → Revenue: $6.99 (net of 30% fee)
• Lower revenue, higher margins
• Rare for mobile apps, more common for marketplaces
Apple and Google have tiered commission structures. Understanding these fees is critical for accurate revenue and expense tracking.
Apple App Store:
Google Play:
Accounting Implication:
Must track revenue by platform, subscription age, and revenue tier to properly calculate platform fees and gross margins. Critical for forecasting and investor reporting.
Mobile apps spend heavily on Facebook, Google, TikTok ads to acquire users. Should these costs be expensed immediately or capitalized as an asset? This decision impacts profitability.
The Debate:
GAAP generally requires expensing UAC as incurred. However, some apps with proven LTV:CAC ratios and long subscription retention can make a case for capitalization under ASC 340-40.
Expense UAC (Common):
Capitalize UAC (Rare):
Our Recommendation:
Expense UAC for GAAP financials, but track LTV:CAC cohorts separately for internal decision-making and investor presentations. Best of both worlds.
Different purchase types require different revenue recognition treatment. Proper tracking is essential for accurate financials and subscription metrics (MRR, ARR, churn).
Auto-Renewing Subscriptions:
Monthly/annual subscriptions that renew automatically
Revenue Recognition: Ratably over subscription period
• $9.99/month subscription → Recognize $9.99 each month
• $99.99/year subscription → Recognize $8.33/month over 12 months
One-Time In-App Purchases:
Virtual goods, level unlocks, one-time features
Revenue Recognition: Immediately upon purchase (point-in-time)
• $4.99 level unlock → Recognize $4.99 immediately
• No deferred revenue
Consumables (Games):
Coins, gems, lives that get "consumed"
Revenue Recognition: When consumed OR estimated consumption pattern
• $9.99 for 1,000 coins → Recognize as coins are spent in-game
• Often use statistical analysis of consumption patterns
Apple and Google allow users to request refunds. You must account for refunds and estimate future refunds (reserve) for proper revenue recognition.
Refund Policies:
Accounting Treatment:
1. Refund Reserve: Estimate expected refunds and reduce revenue accordingly
If you recognize $100K revenue but expect 3% refunds, reduce revenue by $3K and record refund liability
2. Actual Refunds: When refunds occur, reduce the liability (not revenue again)
This prevents double-counting the same refund
Mobile apps sell globally. Many countries require VAT/GST collection on digital services. Apple and Google handle most of this, but you need to understand the implications.
Platform Handling:
Apple and Google generally collect and remit VAT/GST on your behalf in most countries. You receive the net amount (after VAT/GST deducted). This is called "deemed supplier" model.
Example: EU VAT (20%):
• User in Germany pays €9.99 for subscription
• Includes €1.67 VAT (20% of €8.33 net price)
• Apple collects €9.99, remits €1.67 VAT to Germany
• You receive €8.33 × 70% (after 30% Apple fee) = €5.83
• Your revenue: €8.33 (gross) or €5.83 (net of platform fee)
Important Note:
You typically don't need to register for VAT/GST in foreign countries when selling through app stores. But if you sell direct (web subscriptions), you may need registrations in EU, UK, Australia, etc. We help navigate this complexity.
Month 1 Revenue:
Platform Fees (Operating Expense):
Month 1 Revenue:
Platform Fees:
Platform fees already deducted from revenue. No separate expense line item.
✅ Gross Revenue (Recommended for Most Apps)
⚠️ Net Revenue (Rare for Apps)
Bottom Line: Same cash ($8,293 vs $8,321 after refunds), but different presentation. Most mobile apps should use gross revenue recognition as they're the principal. Consult with us to ensure proper treatment under ASC 606.
We see mobile app startups make these costly accounting errors. Avoid them to ensure accurate financials and investor confidence.
Recognizing full annual subscription revenue upfront instead of ratably over 12 months. A $99.99 annual subscription should be recognized at $8.33/month, not $99.99 immediately.
Correct Treatment:
Record $99.99 as deferred revenue liability. Each month, recognize $8.33 revenue and reduce liability by $8.33. After 12 months, deferred revenue is zero.
Recognizing 100% of revenue without estimating and reserving for expected refunds. This overstates revenue and creates a surprise when refunds occur.
Correct Treatment:
Calculate historical refund rate (e.g., 2%). For $10K in monthly subscriptions, recognize $9,800 revenue and $200 refund liability. Adjust quarterly based on actual rates.
Recording platform fees as "cost of goods sold" instead of operating expense. App Store/Google Play fees are distribution/payment processing costs, not COGS.
Correct Treatment:
Record platform fees as "Sales & Marketing" or "Platform Fees" operating expense. COGS should only include direct costs like hosting, third-party APIs, data processing.
Confusing gross user payment with your actual revenue. If a user pays €9.99 including 20% VAT, your revenue is €8.33 (net of VAT), not €9.99. Apple/Google handle VAT remittance.
Correct Treatment:
Record revenue net of VAT/GST. Apple and Google reports show you net amounts. Don't add back VAT to revenue. It's not yours—it's a tax collected on behalf of governments.
Capitalizing user acquisition costs as an asset without proper justification or amortization schedule. GAAP requires expensing unless you meet strict criteria under ASC 340-40.
Correct Treatment:
Expense UAC as incurred (advertising expense). Track LTV:CAC cohorts separately for internal analysis. Only capitalize if you have explicit approval from auditors and strong documentation.
Failing to properly track deferred revenue liability on the balance sheet. This is critical for understanding unearned revenue and cash vs. revenue timing.
Correct Treatment:
Maintain a deferred revenue schedule by subscription. Track opening balance + new deferrals - recognized revenue = ending balance. Investors scrutinize this closely.
A meditation and wellness app with 50K paying subscribers across iOS and Android. $2M ARR, growing 15% month-over-month. Preparing for Series A fundraise. Mix of monthly ($9.99) and annual ($79.99) subscriptions.
During Series A due diligence, investors found major accounting issues that threatened the deal. The company's previous bookkeeper had made critical errors in revenue recognition.
Financial Corrections:
Business Impact:
— CEO & Co-Founder
Follow this checklist to ensure accurate revenue recognition and financial reporting for your mobile app.
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