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. Liability

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

    The amount of money that a company actually receives during a ...
  3. Revenue Officer

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

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

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

    A method of conducting sales by billing the customer on the same ...
Related Articles
  1. Understanding The Income Statement
    Forex Education

    Understanding The Income Statement

  2. Introduction To Fundamental Analysis
    Markets

    Introduction To Fundamental Analysis

  3. Advanced Financial Statement Analysis
    Options & Futures

    Advanced Financial Statement Analysis

  4. Can Getting One Month Ahead Save Your ...
    Budgeting

    Can Getting One Month Ahead Save Your ...

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center