{
  "id": 51288,
  "date": "2022-12-24T20:23:59",
  "date_gmt": "2022-12-25T01:23:59",
  "guid": { "rendered": "https:\/\/finance-able.com\/?p=51288" },
  "modified": "2025-12-21T16:51:13",
  "modified_gmt": "2025-12-21T21:51:13",
  "slug": "deferred-revenue",
  "status": "publish",
  "type": "post",
  "link": "https:\/\/finance-able.com\/deferred-revenue\/",
  "title": {
    "rendered": "What is Deferred Revenue? \u2013 The Ultimate Guide"
  },
  "content": {
    "rendered": "\n<p style=\"font-size:18.5px\"><strong>Master the concept of Deferred Revenue<\/strong> so you can use it on the job in<span class=\"has-inline-color has-black-color\"> <\/span><a href=\"https:\/\/finance-able.com\/investment-banking-career-path\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Investment Banking<\/span><\/strong><\/a>, <a href=\"https:\/\/finance-able.com\/private-equity-vs-venture-capital\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Private Equity<\/span><\/strong><\/a>,<span class=\"has-inline-color has-black-color\"> <\/span>and <strong><a href=\"https:\/\/finance-able.com\/what-is-a-hedge-fund\/\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Hedge Funds<\/span><\/a><\/strong> or <strong><a href=\"https:\/\/finance-able.com\/hedge-fund-vs-mutual-fund\/\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Mutual Funds<\/span><\/a><\/strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">.<\/span><\/p>\n\n\n\n<p>In this article, we will cover:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><p>What&nbsp;<strong>type of transaction<\/strong>&nbsp;<strong>creates Deferred Revenue<\/strong>&nbsp;for a Business.<\/p><\/li>\n\n\n\n<li><p>Why we record the <strong>Deferred Revenue Account on the Balance Sheet as a Liability<\/strong>.<\/p><\/li>\n\n\n\n<li><p>How to&nbsp;<strong>record Deferred Revenue Journal Entries (Debits &amp; Credits)<\/strong><\/p><\/li>\n\n\n\n<li>The <strong style=\"font-size: revert; color: var(--global-palette4);\">Impact<\/strong><span style=\"font-size: revert; color: var(--global-palette4);\">&nbsp;of Deferred Revenue on the Financial Statements.<\/span><\/li>\n\n\n\n<li><p><strong>Examples of Deferred Revenue <\/strong>in Real Life situations.<\/p><p><\/p><\/li>\n<\/ul>\n\n\n\n<p class=\"yoast-reading-time__wrapper\"><span class=\"yoast-reading-time__icon\"><svg aria-hidden=\"true\" focusable=\"false\" data-icon=\"clock\" width=\"20\" height=\"20\" fill=\"none\" stroke=\"currentColor\" style=\"display:inline-block;vertical-align:-0.1em\" role=\"img\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 24 24\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" stroke-width=\"2\" d=\"M12 8v4l3 3m6-3a9 9 0 11-18 0 9 9 0 0118 0z\"><\/path><\/svg><\/span><span class=\"yoast-reading-time__spacer\" style=\"display:inline-block;width:1em\"><\/span><span class=\"yoast-reading-time__descriptive-text\">Estimated reading time: <\/span><span class=\"yoast-reading-time__reading-time\">9<\/span><span class=\"yoast-reading-time__time-unit\"> minutes<\/span><\/p>\n\n\n\n<div style=\"height:6px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-tl-dr\" style=\"font-size:35px\"><strong>TL;DR<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><p>A Business&nbsp;<strong>records Deferred Revenue<\/strong>&nbsp;when a&nbsp;<strong>Customer prepays<\/strong>&nbsp;for future goods or services.<\/p><\/li>\n\n\n\n<li><p>We record Deferred Revenue&nbsp;<strong>as a Liability<\/strong>&nbsp;because it reflects the&nbsp;<strong>obligation to deliver<\/strong> goods or services to a Customer&nbsp;<strong>in the future<\/strong>.<\/p><\/li>\n<\/ul>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Why Does Deferred Revenue Matter?<\/strong><\/h2>\n\n\n\n<p><\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-confused-about-deferred-revenue-1024x576.png\" alt=\"A stick figure sitting at a computer confused about various Deferred Revenue concepts\" class=\"wp-image-51323\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-confused-about-deferred-revenue-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-confused-about-deferred-revenue-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-confused-about-deferred-revenue-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-confused-about-deferred-revenue-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-confused-about-deferred-revenue.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><strong>Deferred Revenue&nbsp;(also called Unearned Revenue)<\/strong> is a&nbsp;<strong>critical concept<\/strong>&nbsp;to master if you are&nbsp;<strong>aiming for (or currently working in) Finance<\/strong>.<\/p>\n\n\n\n<p>As you will see, we <strong>record Deferred Revenue to the Balance Sheet when a customer prepays <\/strong>in advance of receiving goods and services <strong>due to Accrual Accounting rules<\/strong>.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity is-style-wide\"\/>\n\n\n\n<p class=\"has-text-align-center has-medium-font-size\"><strong>Need to Master Accounting for Interviews or the Job? <\/strong><\/p>\n\n\n\n<p class=\"has-text-align-center has-medium-font-size\"><strong>Check our Accounting Deep Dive Course<\/strong><\/p>\n\n\n\n<div class=\"wp-block-kadence-advancedbtn kb-buttons-wrap kb-btns51288_d1170a-03\"><a class=\"kb-button kt-button button kb-btn51288_80d439-1b kt-btn-size-large kt-btn-width-type-auto kb-btn-global-fill  kt-btn-has-text-true kt-btn-has-svg-false  wp-block-kadence-singlebtn\" href=\"https:\/\/courses.finance-able.com\/courses\/accounting-deep-dive\"><span class=\"kt-btn-inner-text\">Explore the course<\/span><\/a><\/div>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity is-style-wide\"\/>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>How does a Business Create Deferred Revenue?<\/strong><\/h2>\n\n\n\n<div style=\"height:1px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Companies record <strong><strong>Deferred Revenue<\/strong>&nbsp;when a customer&nbsp;<strong>pays in advance to receive future goods or services from a Business.<\/strong><\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/customer-paying-CEO.gif\" alt=\"A stick figure paying another stick figure with a dollar bill\" class=\"wp-image-51353\"\/><\/figure>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>If you are thinking, \u2018<strong><em>Why on earth would a customer make advance payments to a Business before receiving a Good or Service<\/em>?<\/strong>&#8216;, you&#8217;re on the right track.<\/p>\n\n\n\n<p>Let&#8217;s look at an&nbsp;<strong>everyday example<\/strong>&nbsp;where we might&nbsp;<strong>prepay for a future service<\/strong>.<\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Deferred Revenue Example: Apple Music Subscription<\/strong><\/h3>\n\n\n\n<div style=\"height:1px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>To kick off our discussion here,&nbsp;<strong>Customers typically don&#8217;t pay ahead of time without some form of attractive prepayment terms<\/strong>.<\/p>\n\n\n\n<p><strong>In most cases, Customers<\/strong>&nbsp;<strong>agree to pay in advance<\/strong>&nbsp;because they receive&nbsp;<strong>a discount<\/strong>.<\/p>\n\n\n\n<p>A great real-life example of this is&nbsp;<strong>paying in advance for a&nbsp;<\/strong><a href=\"https:\/\/digitaltrends.com\/music\/how-much-is-apple-music\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>year-long subscription to a service like Apple Music<\/strong><\/a> (or any other subscription-based services for that matter).<\/p>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-paying-for-apple-music-and-moving-into-future.gif\" alt=\"A stick figure pays for an Apple Music subscription and moves into the future with headphones\" class=\"wp-image-51356\"\/><\/figure>\n\n\n\n<p>For an annual subscription, a customer would&nbsp;<strong>normally pay $10 per month ($120 per year) for Apple Music<\/strong>.<\/p>\n\n\n\n<p>However, if a customer is willing to&nbsp;<strong>pay for a full year in advance<\/strong>, the<strong>&nbsp;price is&nbsp;just $99<\/strong>.<\/p>\n\n\n\n<p>But how do we record a transaction when a customer prepays for future goods or services?<\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Why Don&#8217;t We Record Revenue If The Company Receives Payment?<\/strong><\/h3>\n\n\n\n<div style=\"height:1px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>The key thing to understand about the transaction in the previous section is that&nbsp;<strong>we can&#8217;t record the entire $99 as Revenue on the Income Statement upon advance payment by a customer<\/strong>.<\/p>\n\n\n\n<p><strong>Per US GAAP (Generally Accepted Accounting Principles), we don&#8217;t record Revenue on the Income Statement until a transaction is \u2018earned and substantially complete<\/strong>.&#8217;<\/p>\n\n\n\n<p>As a result, we <strong>defer recognition of the Sale<\/strong> and move the&nbsp;<strong>Revenue to the Company&#8217;s Balance Sheet as a Liability account&nbsp;<\/strong>until the Company <strong>&#8216;earns&#8217; the underlying Revenue<\/strong>.<\/p>\n\n\n\n<p>We then&nbsp;recognize<strong> Revenue <\/strong>and <strong>wind the Liability down<\/strong>&nbsp;when the Company&nbsp;<strong>delivers the good or service<\/strong>&nbsp;to the Customer.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-columns containerwidth is-layout-flex wp-container-core-columns-is-layout-9d6595d7 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:100%\"><div class=\"kb-row-layout-wrap kb-row-layout-id51288_96b505-9b alignnone wp-block-kadence-rowlayout\"><div class=\"kt-row-column-wrap kt-has-1-columns kt-row-layout-equal kt-tab-layout-inherit kt-mobile-layout-row kt-row-valign-top\">\n\n<div class=\"wp-block-kadence-column kadence-column51288_0db892-7a inner-column-1\"><div class=\"kt-inside-inner-col\">\n<p id=\"h-want-to-learn-more-about-finance\" style=\"font-size:35px\"><strong>Want To Learn More About Finance?<\/strong><\/p>\n\n\n\n<p style=\"font-size:18px\"><strong>Check out all of our (free) deep-dive articles in our<\/strong> <a href=\"https:\/\/finance-able.com\/analyst-starter-kit\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Analyst Starter Kit<\/span><\/strong><\/a>:<\/p>\n\n\n<div class=\" wp-block-kadence-portfoliogrid kb-blocks-portfolio-loop-block alignnone kb-portfolio-loop51288_1428f3-cf kb-portfolio-grid-layout-carousel kt-blocks-carousel \"><div class=\" kb-portfolio-grid-layout-carousel-wrap kt-post-grid-layout-carousel-wrap kt-carousel-arrowstyle-whiteondark kt-carousel-dotstyle-dark splide kb-blocks-portfolio-img-hover-zoomout kb-blocks-portfolio-content-hover-zoomin\" data-columns-xxl=\"3\" data-columns-xl=\"3\" data-columns-md=\"3\" data-columns-sm=\"2\" data-columns-xs=\"1\" data-columns-ss=\"1\" data-slider-center-mode=\"false\" data-slider-type=\"carousel\" data-slider-anim-speed=\"400\" data-slider-scroll=\"1\" data-slider-dots=\"true\" data-slider-arrows=\"true\" data-slider-hover-pause=\"false\" data-slider-auto=\"true\" data-slider-center-mode=\"false\" data-slider-speed=\"7000\" data-show-pause-button=\"false\" data-slider-gap=\"30\" data-slider-gap-tablet=\"30\" data-slider-gap-mobile=\"30\" data-slider-gap-unit=\"px\" data-item-selector=\".kb-portfolio-masonry-item\"><div class=\"kadence-splide-slider-init splide__track\"><ul><li class=\"kb-portfolio-slider-item kb-slide-item\"><div class=\"kb-blocks-portfolio-grid-item\"><div class=\"kb-blocks-portfolio-grid-item-inner-wrap kb-feat-image-align-none\"><div class=\"kadence-portfolio-image\"><div class=\"kadence-portfolio-image-intrisic kt-image-ratio-nocrop\" style=\"padding-bottom:56.25%\"><div class=\"kadence-portfolio-image-inner-intrisic\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-1024x576.png\" class=\"attachment-large size-large wp-post-image\" alt=\"An image of a lightbulb with the text Unlevered Beta Formula\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/div><\/div><\/div><div class=\"kb-portfolio-grid-item-inner\"><a href=\"https:\/\/finance-able.com\/unlevered-beta-formula\/\" aria-label=\"Unlevered Beta Formula &#8211; Ultimate Guide\" class=\"portfolio-hover-item-link\"><\/a><div class=\"kb-portfolio-overlay-color\"><\/div><div class=\"kb-portfolio-overlay-border\"><\/div><div class=\"kb-portfolio-content-item-inner\"><h3 class=\"entry-title kb-portfolio-loop-title\">Unlevered Beta Formula &#8211; Ultimate Guide<\/h3><\/div><\/div><\/div><\/div><\/li><li class=\"kb-portfolio-slider-item kb-slide-item\"><div class=\"kb-blocks-portfolio-grid-item\"><div class=\"kb-blocks-portfolio-grid-item-inner-wrap kb-feat-image-align-none\"><div class=\"kadence-portfolio-image\"><div class=\"kadence-portfolio-image-intrisic kt-image-ratio-nocrop\" style=\"padding-bottom:56.25%\"><div class=\"kadence-portfolio-image-inner-intrisic\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-1024x576.png\" class=\"attachment-large size-large wp-post-image\" alt=\"A lightbulb and the words Purchase Price Allocation\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/div><\/div><\/div><div class=\"kb-portfolio-grid-item-inner\"><a href=\"https:\/\/finance-able.com\/purchase-price-allocation\/\" aria-label=\"Purchase Price Allocation in 4 Steps &#8211; The Ultimate Guide\" class=\"portfolio-hover-item-link\"><\/a><div class=\"kb-portfolio-overlay-color\"><\/div><div class=\"kb-portfolio-overlay-border\"><\/div><div class=\"kb-portfolio-content-item-inner\"><h3 class=\"entry-title kb-portfolio-loop-title\">Purchase Price Allocation in 4 Steps &#8211; The Ultimate Guide<\/h3><\/div><\/div><\/div><\/div><\/li><li class=\"kb-portfolio-slider-item kb-slide-item\"><div class=\"kb-blocks-portfolio-grid-item\"><div class=\"kb-blocks-portfolio-grid-item-inner-wrap kb-feat-image-align-none\"><div class=\"kadence-portfolio-image\"><div class=\"kadence-portfolio-image-intrisic kt-image-ratio-nocrop\" style=\"padding-bottom:45.138888888889%\"><div class=\"kadence-portfolio-image-inner-intrisic\"><img loading=\"lazy\" decoding=\"async\" width=\"720\" height=\"325\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1.png\" class=\"attachment-large size-large wp-post-image\" alt=\": A stick figure answering an interview question with the title text &#039;Walk Me Through an LBO&#039; below\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1.png 720w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-300x135.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-400x181.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-624x282.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-50x23.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-100x45.png 100w\" sizes=\"auto, (max-width: 720px) 100vw, 720px\" \/><\/div><\/div><\/div><div class=\"kb-portfolio-grid-item-inner\"><a href=\"https:\/\/finance-able.com\/walk-me-through-a-dcf\/\" aria-label=\"Walk Me Through a DCF in 5 Steps &#8211; The Ultimate Guide\" class=\"portfolio-hover-item-link\"><\/a><div class=\"kb-portfolio-overlay-color\"><\/div><div class=\"kb-portfolio-overlay-border\"><\/div><div class=\"kb-portfolio-content-item-inner\"><h3 class=\"entry-title kb-portfolio-loop-title\">Walk Me Through a DCF in 5 Steps &#8211; The Ultimate Guide<\/h3><\/div><\/div><\/div><\/div><\/li><\/ul><\/div><div class=\"clearfix\" style=\"clear:both\"><\/div><\/div><\/div><\/div><\/div>\n\n<\/div><\/div>\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><\/p>\n<\/div>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Why Is The Deferred Revenue Account a Balance Sheet Liability?<\/strong><\/h3>\n\n\n\n<div style=\"height:0px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>A&nbsp;<strong>common question<\/strong>&nbsp;that comes about at this point is, \u2018<strong><em>Why do we record Deferred Revenue as a Liability?<\/em><\/strong>  <strong><em>It seems more logical that we would reflect it as an Asset Account<\/em>.<\/strong>&#8216;<\/p>\n\n\n\n<p>To answer that question, we should revisit the&nbsp;<strong>fundamental substance of a Liability<\/strong>.<\/p>\n\n\n\n<p>With any&nbsp;Liability, we&nbsp;<strong>receive a benefit today but owe payment in the future<\/strong>.<\/p>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-image size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/liability-vs-deferred-revenue-today-and-future-1024x576.png\" alt=\"A table showing the comparison between how a liability and  deferred revenue work today and in the future\" class=\"wp-image-51326\" style=\"width:752px;height:422px\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/liability-vs-deferred-revenue-today-and-future-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/liability-vs-deferred-revenue-today-and-future-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/liability-vs-deferred-revenue-today-and-future-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/liability-vs-deferred-revenue-today-and-future-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/liability-vs-deferred-revenue-today-and-future.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<p>With Deferred Revenue,&nbsp;<strong>the Company receives a benefit (i.e. Cash) now from the Customer prepayment<\/strong>.<\/p>\n\n\n\n<p>However, the Company&nbsp;<strong>owes delivery of the goods or services to the Customer in the future.<\/strong><\/p>\n\n\n\n<p>Because delivery of the&nbsp;<strong>future goods or services owed is the responsibility of the Business<\/strong>, we&nbsp;<strong>record a Liability<\/strong>.<\/p>\n\n\n\n<p>Now let\u2019s take a look at how we would <strong>record the above transactions in terms of<mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"> <\/mark><\/strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><strong><a href=\"https:\/\/www.patriotsoftware.com\/blog\/accounting\/debits-and-credits\/#:~:text=A%20debit%20is%20an%20entry,%2C%20liability%2C%20or%20revenue%20accounts.&amp;text=A%20credit%20is%20an%20entry,an%20asset%20or%20expense%20account.\" target=\"_blank\" rel=\"noreferrer noopener\">Debits and Credits<\/a><\/strong>.<\/mark><\/p>\n\n\n<!-- This site is converting visitors into subscribers and customers with OptinMonster - https:\/\/optinmonster.com :: Campaign Title: What Is Deferred Revenue? - Obfuscation -->\n<div id=\"om-ypaoftdwjluawfyn9lms-holder\"><\/div>\n<script>(function(d,u,ac){var s=d.createElement('script');s.type='text\/javascript';s.src='https:\/\/a.omappapi.com\/app\/js\/api.min.js';s.async=true;s.dataset.user=u;s.dataset.campaign=ac;d.getElementsByTagName('head')[0].appendChild(s);})(document,130718,'ypaoftdwjluawfyn9lms');<\/script>\n<!-- \/ OptinMonster -->\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Deferred Revenue Journal Entry<\/strong><\/h2>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>In Accounting, <strong>we record transactions as <a href=\"https:\/\/www.myaccountingcourse.com\/accounting-cycle\/journal-entries\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Journal Entries<\/span><\/a> with <a href=\"https:\/\/www.patriotsoftware.com\/blog\/accounting\/debits-and-credits\/#:~:text=A%20debit%20is%20an%20entry,%2C%20liability%2C%20or%20revenue%20accounts.&amp;text=A%20credit%20is%20an%20entry,an%20asset%20or%20expense%20account.\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Debits and Credits<\/span><\/a><\/strong><span class=\"has-inline-color has-black-color\">.<\/span><\/p>\n\n\n\n<p>Below we walk through the <strong>two typical Journal entries for Deferred Revenue<\/strong>.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/deferred-revenue-journal-entries-1024x576.png\" alt=\"Example of the Journal Entries to record Deferred Revenue\" class=\"wp-image-51328\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/deferred-revenue-journal-entries-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/deferred-revenue-journal-entries-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/deferred-revenue-journal-entries-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/deferred-revenue-journal-entries-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/deferred-revenue-journal-entries.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<div class=\"schema-how-to wp-block-yoast-how-to-block\"><p class=\"schema-how-to-description\"><strong>How to Record Deferred Revenue Journal Entries<\/strong><br><\/p> <ol class=\"schema-how-to-steps\"><li class=\"schema-how-to-step\" id=\"how-to-step-1638295648348\"><strong class=\"schema-how-to-step-name\"><em>Customer Makes Prepayment for Future Delivery of Good or Service<\/em><\/strong> <p class=\"schema-how-to-step-text\"><br\/><strong>Debit Cash<\/strong> to reflect the <strong>inflow of Cash<\/strong> to the Business. <br\/><br\/><strong>Credit Deferred Revenue<\/strong> to reflect the fact that the <strong>Company now owes<\/strong> the customer a Good or Service in the future. <br\/><\/p> <\/li><li class=\"schema-how-to-step\" id=\"how-to-step-1638295732564\"><strong class=\"schema-how-to-step-name\"><em>Good or Service is Delivered\/Earned<\/em><\/strong> <p class=\"schema-how-to-step-text\"><br\/>When the good or service is delivered to the customer, we <strong>Debit the previously recorded Liability<\/strong> to reflect the fact that the <strong>prior obligation has been satisfied<\/strong>. <br\/><br\/>And we <strong>Credit Revenue<\/strong> to reflect that the <strong>Good or Service<\/strong> <strong>has been delivered <\/strong>and that the transaction is now earned and substantially complete. <\/p> <\/li><\/ol><\/div>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>Now let\u2019s switch gears and look at <strong><strong>a real-life example of Deferred Revenue<\/strong><\/strong>.<\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Example of Deferred Revenue: Salesforce.com<\/strong><\/h2>\n\n\n<div class=\"wp-block-image is-style-default\">\n<figure class=\"aligncenter size-medium\"><img loading=\"lazy\" decoding=\"async\" width=\"300\" height=\"210\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce.com_logo-300x210.png\" alt=\"salesforce.com logo\" class=\"wp-image-51388\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce.com_logo-300x210.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce.com_logo-1024x716.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce.com_logo-768x537.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce.com_logo-1536x1075.png 1536w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce.com_logo-2048x1433.png 2048w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce.com_logo-624x437.png 624w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>In real life,&nbsp;<strong>Software as a Service (SAAS) Businesses<\/strong>&nbsp;typically have&nbsp;<strong>significant Deferred Revenue<\/strong>.<\/p>\n\n\n\n<p>In this example, we&#8217;ll&nbsp;<strong>look at&nbsp;<\/strong><a href=\"https:\/\/salesforce.com\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-theme-palette-1-color\">Salesforce.com<\/mark><\/strong><\/a>, one of the&nbsp;<strong>largest Customer Relationship Management (or \u2018CRM&#8217;) SAAS businesses<\/strong>.<\/p>\n\n\n\n<p><strong>The high level of Deferred Revenue arises because SAAS businesses<\/strong>&nbsp;typically&nbsp;<strong>offer customers significant discounts<\/strong>&nbsp;in return for paying in advance for their services.<\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/SAAS-Prepayment-Deferred-Revenue-1-1024x576.png\" alt=\"an image showing a customer agreeing to prepay for future services.\" class=\"wp-image-51333\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/SAAS-Prepayment-Deferred-Revenue-1-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/SAAS-Prepayment-Deferred-Revenue-1-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/SAAS-Prepayment-Deferred-Revenue-1-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/SAAS-Prepayment-Deferred-Revenue-1-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/SAAS-Prepayment-Deferred-Revenue-1.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<div style=\"height:15px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>We can find the&nbsp;<strong>total balance of Salesforce.com&#8217;s Deferred Revenue<\/strong>&nbsp;on the Company&#8217;s&nbsp;<a href=\"https:\/\/youtu.be\/Sx2R6qS8ZJw\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Balance Sheet<\/strong><\/a><strong>.<\/strong><\/p>\n\n\n\n<p>In&nbsp;<strong>Salesforce&#8217;s Balance Sheet,<\/strong> we can see that the&nbsp;<strong>Company has received nearly $13 billion in Customer Prepayments<\/strong>&nbsp;for which it owes future services.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce-balance-sheet-deferred-revenue-2021-1024x576.png\" alt=\"an image showing the Unearned Revenue balance for Salesforce.com in Fiscal 2021\" class=\"wp-image-51334\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce-balance-sheet-deferred-revenue-2021-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce-balance-sheet-deferred-revenue-2021-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce-balance-sheet-deferred-revenue-2021-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce-balance-sheet-deferred-revenue-2021-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce-balance-sheet-deferred-revenue-2021.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<p>It&#8217;s important to capture the fact that this <strong>large Deferred Revenue balance <\/strong>will have <strong>zero impact on the Income Statement (Revenue &#8211;&gt; Net Income)<\/strong> until Salesforce delivers the underlying products and services to Customers.<\/p>\n\n\n\n<p>If we&nbsp;<strong>switch over to the&nbsp;Cash Flow Statement<\/strong>,&nbsp;we can see that&nbsp;<strong>Unearned Revenue (i.e. \u2018Deferred Revenue&#8217; or &#8216;Unearned Income&#8217;) has created $1.5-1.9 billion of annual incremental Cash Flow<\/strong>&nbsp;for Salesforce year in the last three years.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce-cash-flow-statement-deferred-revenue-2021-1024x576.png\" alt=\"an image showing the Cash Flow impact of Unearned Revenue for Salesforce.com over the previous three years\" class=\"wp-image-51335\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce-cash-flow-statement-deferred-revenue-2021-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce-cash-flow-statement-deferred-revenue-2021-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce-cash-flow-statement-deferred-revenue-2021-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce-cash-flow-statement-deferred-revenue-2021-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/Salesforce-cash-flow-statement-deferred-revenue-2021.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>Said differently, ~<strong><em><u>40-45%<\/u><\/em><\/strong>&nbsp;of the Company&#8217;s&nbsp;<a href=\"https:\/\/investopedia.com\/terms\/c\/cash-flow-from-operating-activities.asp\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Cash Flow from Operations<\/strong><\/a>&nbsp;<strong>has come from Deferred Revenue<\/strong>!<\/p>\n\n\n\n<p>As you can see,&nbsp;<strong>Deferred Revenue provides a major benefit<\/strong>&nbsp;to Salesforce.com&#8217;s business by generating&nbsp;<strong>significant excess&nbsp;Cash Flow<\/strong>.<\/p>\n\n\n\n<p>However,&nbsp;<strong>as we said earlier,&nbsp;Salesforce now owes those services to customers in the future<\/strong>.<\/p>\n\n\n\n<p>Now that we&#8217;ve looked at a&nbsp;<strong>real-life example with Saleseforce.com<\/strong>, let&#8217;s now&nbsp;<strong>answer a few common questions<\/strong>&nbsp;that pop up related to Deferred Revenue.<\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Wrap-Up: Deferred Revenue<\/strong><\/h2>\n\n\n\n<div style=\"height:1px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-understanding-deferred-revenue-1024x576.png\" alt=\"An image of a stick figure sitting at a desk understanding [keyword]\" class=\"wp-image-51337\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-understanding-deferred-revenue-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-understanding-deferred-revenue-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-understanding-deferred-revenue-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-understanding-deferred-revenue-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/11\/stick-figure-understanding-deferred-revenue.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><strong>Hopefully<\/strong>, you now have a&nbsp;<strong>much better understanding of<\/strong>&nbsp;the ins and outs of&nbsp;<strong>Deferred Revenue<\/strong>.<\/p>\n\n\n\n<p><strong>Let us know if you have any questions in the comments below. <\/strong><\/p>\n\n\n\n<p>You can also <strong>send comments, feedback, or suggestions for new article topics <\/strong>to <strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-theme-palette-1-color\"><a href=\"mailto:admin@finance-able.com\" rel=\"sponsored nofollow\">admin@<\/a><a href=\"mailto:content@finance-able.com\" rel=\"sponsored nofollow\">finance-able.com<\/a><\/mark><\/strong>. <\/p>\n\n\n\n<p><strong>We&#8217;d love to hear from you!<\/strong><\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>About the Author<\/strong><\/h2>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"alignleft size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"500\" height=\"500\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo.jpg\" alt=\"Picture of Mike Kimpel, Founder of Finance|able\" class=\"wp-image-26350\" style=\"width:300px;height:300px\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo.jpg 500w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-300x300.jpg 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-100x100.jpg 100w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-150x150.jpg 150w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-50x50.jpg 50w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/figure>\n<\/div>\n\n\n<p><a href=\"https:\/\/finance-able.com\/about-us\/\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Mike Kimpel<\/mark><\/strong><\/a> is the <strong>Founder and CEO<\/strong> of <strong>Finance|able<\/strong>, a next-generation Finance Career Training platform. Mike has worked in Investment Banking, Private Equity, Hedge Fund, and Mutual Fund roles during his career.<\/p>\n\n\n\n<p>He is an <strong>Adjunct Professor<\/strong> in <strong>Columbia Business School&#8217;s <a href=\"https:\/\/business.columbia.edu\/heilbrunn\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Value Investing Program<\/mark><\/a><\/strong> and leads the Finance track at <a href=\"https:\/\/www.accessdistributed.org\/\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><strong>Access Distributed<\/strong><\/mark><\/a>, a non-profit that creates access to top-tier Finance jobs for students at non-target schools from underrepresented backgrounds.<\/p>\n\n\n\n<div class=\"wp-block-kadence-icon kt-svg-icons kt-svg-icons51288_5a869f-1a alignnone\">\n<div class=\"wp-block-kadence-single-icon kt-svg-style-default kt-svg-icon-wrap kt-svg-item-51288_5c0b02-e8\"><a href=\"https:\/\/www.linkedin.com\/in\/mikekimpel\/\" class=\"kt-svg-icon-link\" target=\"_blank\" rel=\"noopener noreferrer\" aria-label=\"Mike Kimpel LinkedIn\"><span class=\"kb-svg-icon-wrap kb-svg-icon-fa_linkedin\"><svg viewBox=\"0 0 448 512\"  fill=\"currentColor\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\"  aria-hidden=\"true\"><path d=\"M416 32H31.9C14.3 32 0 46.5 0 64.3v383.4C0 465.5 14.3 480 31.9 480H416c17.6 0 32-14.5 32-32.3V64.3c0-17.8-14.4-32.3-32-32.3zM135.4 416H69V202.2h66.5V416zm-33.2-243c-21.3 0-38.5-17.3-38.5-38.5S80.9 96 102.2 96c21.2 0 38.5 17.3 38.5 38.5 0 21.3-17.2 38.5-38.5 38.5zm282.1 243h-66.4V312c0-24.8-.5-56.7-34.5-56.7-34.6 0-39.9 27-39.9 54.9V416h-66.4V202.2h63.7v29.2h.9c8.9-16.8 30.6-34.5 62.9-34.5 67.2 0 79.7 44.3 79.7 101.9V416z\"\/><\/svg><\/span><\/a><\/div>\n<\/div>\n\n\n\n<p><\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Frequently Asked Questions<\/strong><\/h2>\n\n\n\n<p><\/p>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1638290834539\"><strong class=\"schema-faq-question\"><strong><em>What is Deferred Revenue?<\/em><\/strong><\/strong> <p class=\"schema-faq-answer\"><strong>Deferred Revenue<\/strong> is created when a <strong>customer prepays for a future good or service<\/strong>. Because we only record Revenue when its earned and substantially complete, we <strong>initially record Deferred Revenue as a Liability<\/strong> (reflecting the value of the good or service to be delivered). <br\/><br\/>When the <strong>business delivers the good or service<\/strong> to the Customer, we <strong>eliminate the original Liability and record Revenue<\/strong>.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1638290931751\"><strong class=\"schema-faq-question\"><strong><em>How do you record Deferred Revenue?<\/em><\/strong><\/strong> <p class=\"schema-faq-answer\">We <strong>record Deferred Revenue as a Liability<\/strong> upon prepayment by the Customer. <br\/><br\/>When the <strong>business delivers the good or service owed<\/strong> to the customer, we then <strong>record Revenue<\/strong> and simultaneously <strong>eliminate the original Liability<\/strong> that we created at the time of the Customer prepayment.<br\/><\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1638290979347\"><strong class=\"schema-faq-question\"><strong><em>Is Deferred Revenue a Liability?<\/em><\/strong><\/strong> <p class=\"schema-faq-answer\">Deferred Revenue reflects an <strong>obligation to deliver goods or services<\/strong> to a Customer in the future. As a result, <strong>Deferred Revenue is recorded as a Liability<\/strong>.<\/p> <\/div> <\/div>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Related Links<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-yoast-seo-related-links yoast-seo-related-links\">\n<li><a href=\"https:\/\/finance-able.com\/walk-me-through-a-dcf\/\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Walk Me Through a DCF<\/span><\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/finance-able.com\/negative-working-capital\/\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Negative Working Capital Made Easy \u2013 The Ultimate Guide (2021)<\/span><\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/finance-able.com\/walk-me-through-an-lbo\/\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Walk me through an LBO<\/span><\/a><\/li>\n<\/ul>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"yoast-breadcrumbs\"><span><span><a href=\"https:\/\/finance-able.com\/\">Home<\/a><\/span> \u00bb <span class=\"breadcrumb_last\" aria-current=\"page\">What is Deferred Revenue? \u2013 The Ultimate Guide<\/span><\/span><\/div><style class=\"advgb-styles-renderer\">.kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-table-of-content-wrap{margin-top:42px;margin-right:42px;margin-bottom:42px;margin-left:42px;padding-top:10px;padding-right:10px;padding-bottom:10px;padding-left:10px;background-color:#f4f4f4;border-top:3px solid currentColor;border-right:3px solid currentColor;border-bottom:3px solid currentColor;border-left:3px solid currentColor;border-top-left-radius:20px;border-top-right-radius:20px;border-bottom-right-radius:20px;border-bottom-left-radius:20px;}.kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f 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