Skip to content
Book a demo
Back to glossary

Revenue accounting

Deferred revenue

Money received for service not yet delivered. A liability, not revenue, until it is earned.

Deferred revenue is cash you have taken for something you have not yet delivered. An annual plan billed up front creates a liability that is released into revenue month by month as the service is provided.

It sits on the balance sheet, not the income statement, and it is the reason a business can be cash-rich and revenue-poor at the same moment.

The deferred revenue balance is also a rough measure of contracted future delivery, which is why it is watched alongside ARR. See revenue recognition for how the release is calculated.

Related terms

  • Revenue recognition Determining when revenue is earned rather than when it was invoiced or paid.
  • Bookings, billings and revenue Three different numbers that are routinely confused: what was contracted, what was invoiced, and what has been earned.
  • ASC 606 and IFRS 15 The converged accounting standards for revenue from contracts with customers, built on a five-step model.