Deferred Revenue

What is deferred revenue?

Deferred revenue represents future revenue, i.e. revenue to be earned by the business in the coming period of time, for which money have been already received.

Such advances received cannot be recognized as revenue in the Income Statement, as revenue has not yet been earned.

Deferred Revenue – Liability

Deferred revenue is reported on the Balance Sheet as a liability, since this is an obligation of the business to sell goods or provide services for the amount of money received. Therefore the answer to the question is deferred revenue a liability is yes, it is liability.

Deferred revenue definition implies that this is a deferred amount – coming in the future.

Deferred Revenue Accounting

For the purpose of deferred revenue accounting – Deferred Revenue account or Unearned Revenue account is used. The following deferred revenue journal entry is recorded:

D Cash (Balance Sheet)

C Deferred Revenue (Balance Sheet)

When the business will earn this revenue, i.e. sell goods or provide services, which will be a basis for revenue recognition, the following journal entry will be recorded:

D Deferred Revenue (Balance Sheet)

C Revenue (Income Statement)