Founder Edition
Puzzle takes the money you receive for a yearly subscription and spreads it out over the year, counting a little bit each month.
For example, if you buy a $12 yearly subscription starting on October 1, Puzzle thinks of it as making $1 each month. So, it counts $1 for October, $1 for November, and keeps going until it adds up to $12 after a year.
But if you start the same $12 subscription on October 15, Puzzle counts it a little differently. For the first month, it only counts 50 cents, because you're starting in the middle of the month. So it wouldn't be fair to count the whole $1 for that first October.
By default, to keep the math simple, Puzzle pretends that every month has 30 days. So a year is 360 days (30 days times 12 months). This is the Daily‑360 method. Your revenue recognition policy can use a different method instead (see below).
Accountant Edition
A more technical answer (if you're an accountant)
The calculation method is set per revenue recognition policy. The options are:
Daily‑360 (the default): 30 days per month, which results in 360 days for the year (30 days x 12 months)
Daily‑Actual: uses the actual number of days in each month
Straight‑line monthly: spreads revenue evenly by month
Puzzle uses the policy's method to automatically calculate the pro-rated amount of revenue to be recognized in any given period, with a prorated first month. The example below uses Daily‑360.
Example:
A customer signs up for a subscription
Your customer, David Sacks, signs up for a monthly (30 day) subscription on September 26 for $2.00.
The value of this subscription is $2 per month.
What happens in September
Revenue needs to be prorated as the subscription was not purchased until September 26.
The first month amortization should be $2 * 5 days/30 days = $0.32
What happens in October
In the next month, the amortization is the total amount of the subscription ($2) less the amount recognized in September = $1.68.
Tell me more about the amortization
Puzzle's revenue amortization is cumulative. This means the rounding is handled over the course of the entire amortization period. Some months may not have the exact same amortization amount.
Example:
Take a $100 contract that needs to be recognized over 12 months.
The first month amortization is $100 * 1/12 = $8.33.
The second month cumulative amortization is $100 * 2/12 = $16.67. This means the monthly amortization is $16.67 - $8.33 = $8.34, which is $0.01 different from the first month.