Deferred Revenue

Deferred Revenue refers to the Money received by a business for goods or services that have not yet been delivered or performed. It is considered a Liability on the balance sheet because it represents an obligation to provide future services or goods to the customer.

Deferred Revenue is recognized as income only when the goods or services have been delivered or performed. Until that point, it remains a Liability.

Examples:

• A subscription service receives payment for a year of service in advance. The Revenue is recorded as deferred until the service is provided monthly.
• A software company sells a software license that includes one year of technical support. The upfront payment is deferred Revenue until the support is provided over the year.
• A gym collects annual membership fees upfront. The Revenue is deferred and recognized monthly as the member uses the gym facilities.

Cases:

• If a company sells a product with a warranty, the Revenue for the warranty may be deferred until the warranty period has expired.
• A travel agency collects payment for a vacation package before the trip occurs