What is deferred revenue?
submitted by t2

jj

It's revenue that hasn't been earned yet. If you are paid in advance for providing a service, you haven't actually earned the money until the service is complete. Until then, it is deferred revenue (deferred income), and it is a liability.

jared

Deferred revenue, sometimes called unearned revenue, is money a company has received upfront for a product they haven't delivered yet.

If a magazine publisher receives a year's subscription fee at the start of the year, they can't recognize all that revenue right away. Instead, they record it as deferred revenue and gradually recognize it as earned over the subscription period. Otherwise you'd see a big spike of revenue at the beginning of the year, and nothing else later on.

It’s an important concept because it helps the company see the income match up with the work they're doing through the year. It also makes the books more accurate, because that deferred revenue is a liability for them. They need to provide that product to make it income.

darron

On the balance sheet, deferred revenue goes under liabilities because the company has an obligation to deliver some product in the future. As the company delivers that product, it can start to recognize the revenue on the income statement.

It's a good way to make sure revenue isn't overstated in periods where the actual delivery hasn't happened yet. Also, just being practical, deferred revenue tells you a bit about a company's revenue. For instance, if a company has a lot of deferred revenue, it might mean they have a strong pipeline of future income. Great sign that they're reliable. Recurring revenue is a great thing.