Deferred Revenue

Deferred revenue is money a company has already collected for goods or services it has not delivered yet. Because the company still owes the customer that product, service, or subscription, accountants record the payment as a liability on the balance sheet rather than as income.

How it works

Finance teams keep deferred revenue separate from earned revenue so each dollar gets reported in the period when the company actually delivers the work, not the period when the cash arrived. As the company fulfills its side of the agreement, it moves the matching portion of deferred revenue into earned revenue.