It is the money for goods and services that an organization collects in advance. It means that these goods and services will be delivered or carried out at a later date. Deferred Revenue has not yet been earned and demonstrates deliverables owed to a client.
Deferred Revenue, deferred income, customer deposits, and non-earned income terms are also used interchangeably.
Deferred Revenue allows a business to take some form of action before the money earned can be deemed to be Revenue.
Is deferred Revenue a liability or an asset?
Deferred Revenue is a liability on a company’s balance sheet since it represents an obligation to deliver goods to the client. In other terms, the consumer has paid in advance for products and services. It does not count as Revenue since there is still a risk that the client will cancel the contract or order, or that the company will not deliver. It’s also a liability that the company owes the consumer the products or services. If the business didn’t pay, it would owe money to the client.
What is the double entry for deferred Revenue?
Cash will be debited (Dr.) (as payment has received in advance from the customer)
Deferred Revenue will be Credited (Cr.) (the liability we owe to the customer until we deliver their goods)
Deferred income is a current liability which is shown under trade payables on the balance sheet.
Once the corporation delivers the goods or services and earned the amount, it can be considered Revenue or profit. It will then be moved as Revenue to the income statement.
Deferred Revenue vs Accounts Receivable
Accounts receivable represent money owed by its clients to the company for products or services sold and delivered, but payment is yet to be received for the same. It’s money that the company owes customers.
|Deferred Revenue||Accounts Receivable|
|Deferred Revenue is the cash received from the customers for good or services not yet delivered.||Accounts Receivable or debtors are the person from whom we have to receive the money for the goods sold to them on credit.|
|It is shown as a liability on a company’s balance sheet.||It is shown as an asset on the balance sheet until the payment is received from customer.|
|For example: An annual software subscription, for which each month the software provider receives one-twelfth of the deferred revenue.||For example: goods or services sold on credit.|