Deferred Revenue

AAA

DEFINITION of 'Deferred Revenue'

Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been rendered or products have been delivered. Deferred revenue is a liability because it refers to revenue that has not yet been earned, but represents products or services that are owed to the customer. As the product or service is delivered over time, it is recognized as revenue on the income statement.




INVESTOPEDIA EXPLAINS 'Deferred Revenue'

For example, a company that receives an advance payment of $100,000 for delivery of a product would book it as deferred revenue on its balance sheet. Once it delivers the product to the customer, the company would transfer the $100,000 from the deferred revenue account to regular revenue on its income statement.


Software companies generally have sizable amounts of deferred revenues on their balance sheets, typically representing license fees and annual maintenance charges. Analysts study trends in deferred revenues of such companies for a better indication of their financial performance.


Recording unearned revenues on the income statement, rather than as deferred revenues on the balance sheet, may be considered as aggressive accounting, as it would have the effect of overstating revenues.

RELATED TERMS
  1. Revenue Officer

    An individual who collects revenues such as taxes and duties ...
  2. Deferred Charge

    A prepaid expense that is treated as an asset on a balance sheet ...
  3. Revenue Recognition

    An accounting principle under generally accepted accounting principles ...
  4. Bill-And-Hold Basis

    A method of conducting sales by billing the customer on the same ...
  5. Liability

    A company's legal debts or obligations that arise during the ...
  6. Revenue

    The amount of money that a company actually receives during a ...
Related Articles
  1. Understanding The Income Statement
    Forex Education

    Understanding The Income Statement

  2. Advanced Financial Statement Analysis
    Options & Futures

    Advanced Financial Statement Analysis

  3. Introduction To Fundamental Analysis
    Markets

    Introduction To Fundamental Analysis

  4. Variable Costs
    Investing

    Variable Costs

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center