Apple Inc. (NASDAQ:AAPL)’s reported revenue for the December quarter may appear flat, but that’s because the company is planning on hiding $900 million in cash from its results. According to Daniel Eran Dilger of Apple Insider, the hidden cash is the result of Apple’s decision to start offering some software free.

Apple Earnings

Apple offers free software

The company recently announced it would offer free upgrades to OS X Mavericks. It will also offer Keynote, Numbers, iMovie, iPhoto and GarageBand as free apps for Macs and iOS. Because these offerings are free, Apple will change the way it accounts for the revenues from them. Even though it will still receive the cash, investors just won’t see it in the December results.

Apple Inc. (NASDAQ:AAPL) started this new accounting practice when the two new iPhones were released toward the end of the September quarter. The company started delaying recognition of part of its sales receipts in order to comply with rules which don’t allow revenue for products to be booked until those products are fully revenue.

Apple increases deferred revenues

The company delayed part of its income so that it would be able to offer the iOS updates for free. Chief Financial Officer Peter Oppenheimer said they would defer $15 to $20 per iPhone or iPad, which is $5 more than they were already deferring. Deferred revenues for Mac computers will also increase, going from $25 to $40.  Those deferred revenues will gradually make their way back into Apple Inc. (NASDAQ:AAPL)’s reported revenues over a two-year period for iOS devices and a four-year period for Macs. As a result, near-term results will lose out, while long-term margins and earnings will see a small lift.

Apple Inc. (NASDAQ:AAPL) guided for gross margins to be flat in spite of the deferred accounting change and the addition of new products. The company also said the accounting change will serve to smooth out the seasonality of many of its products. In addition, offering free software creates value for Apple products and sets them apart from others in a way that’s different than simply comparing specs of devices.