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Deferred Revenue: Definition and Meaning
Definition
Deferred revenue is cash received from a customer before the related goods or services have been delivered. It is generally recorded as a liability until the revenue is earned.
Why It Matters
Recording deferred revenue helps prevent a business from treating advance customer payments as earned revenue before performance occurs. This is important for accurate financial reporting and may be relevant to subscriptions, deposits, maintenance agreements, training programs, and certain project arrangements.
The timing of revenue recognition depends on the applicable accounting framework, contract terms, and the nature of the company’s obligations.
Example
A customer pays in advance for a one-year service contract. The business records the payment as deferred revenue and recognizes revenue as services are provided.
Related Terms
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