> ## Documentation Index
> Fetch the complete documentation index at: https://docs.getlago.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Wallets and prepaid credits

> How Lago recognizes revenue from prepaid and granted credits.

A wallet lets a customer pre-fund their account and draw it down through usage. Buying credits isn't earning revenue, the same way an annual subscription invoice isn't. You earn the revenue as the customer **consumes** the credits.

Lago handles two kinds of credits differently: credits the customer **paid** for, and credits you **gave** them for free.

## Purchased (prepaid) credits

When a customer buys credits, the money is a liability: you owe them service. Lago books the top-up to a **customer credit balance**, not to revenue. As the customer consumes usage against the wallet, that usage is recognized as revenue, exactly like any [usage-based charge](/guide/revenue-recognition/how-it-works/usage-based-charges), and the credit balance draws down.

A customer buys \$100 of credits on January 1, then consumes \$30 of usage during January.

| Date               | Event                   | Recognized revenue impact | Credit balance | Explanation                                          |
| ------------------ | ----------------------- | ------------------------- | -------------- | ---------------------------------------------------- |
| Jan 1              | \$100 credits purchased | None                      | \$100.00       | A top-up is a liability, not revenue.                |
| Throughout January | \$30 usage consumed     | \$30.00                   | \$70.00        | Revenue recognized as credits are spent.             |
| Jan 31             | Period ends             | \$30.00 for January       | \$70.00        | The unused \$70 stays as a liability until consumed. |

Whether usage is paid with cash or with prepaid credits, the recognized revenue is the same. Only the funding source differs.

## Granted (free) credits

Credits you give away (promotional credits, goodwill) aren't paid for, so when they're consumed they don't produce real revenue. Lago records their consumption as **contra-revenue** (free credits), which reduces recognized revenue rather than adding to it. This keeps your revenue honest: you can't earn revenue on service you gave away.

## Voided or refunded credits

If purchased credits are voided or refunded, Lago reverses the wallet entry so the credit balance and any refund net out correctly. Granted credits that are voided simply reverse the original grant.

## What this means for your reports

* A wallet top-up does **not** appear in the [Recognized Revenue report](/guide/revenue-recognition/reports/recognized-revenue). Only consumption does.
* Unused prepaid credits sit as a liability (customer credit balance) in the [Statements](/guide/revenue-recognition/reports/statements).
* Consumed free credits show as negative contra-revenue, distinct from purchased-credit consumption.