Deferred Revenue

Deferred Revenue

Deferred revenue is revenue that is received for services or products that will be provided in the future.

Why Deferred Revenue Exists:

• When a company receives payment for services or products that will be delivered in the future, the revenue is recorded as deferred revenue.
• The revenue is deferred because it is not yet earned, but it is considered to be payable in the future.
• Deferred revenue is an account used to track payments received for services or products that will be provided in the future.

Accounting Treatment:

• Deferred revenue is recorded as a liability on the balance sheet.
• The revenue is recognized as income when the services or products are delivered.
• The amount of revenue recognized is equal to the amount of deferred revenue that has been earned.

Examples:

• A company receives payment for a service that will be performed in the future.
• A company receives payment for a subscription to a service that will be provided over several months.
• A company receives payment for a pre-paid order for a product that will be delivered in the future.

Financial Statement Impact:

• Deferred revenue increases the company’s liabilities.
• Deferred revenue decreases the company’s current assets.
• When the revenue is recognized in the future, it decreases liabilities and increases revenue.

Key Points:

• Deferred revenue is revenue that is received for services or products that will be provided in the future.
• Deferred revenue is recorded as a liability on the balance sheet.
• The revenue is recognized as income when the services or products are delivered.
• Deferred revenue can impact financial statements in various ways.