What is Deferred Revenue?
Deferred revenue is important because it’s the money a company collects before it actually delivers a product. For example, a software company sells and receives payment for a computer program before it gets delivered or installed. This doesn’t get recorded as straight revenue because, if something goes wrong with the job, the money is at risk.
Deferred revenue is any type of revenue that is received as compensation for goods and services that will be delivered at some future date. This means that the revenue is actually collected before it is earned. Deferred revenue appears in the accounting records as a liability until such time that the goods and services are actually provided to the buyer; at that point, the deferred revenue can be recorded in the same manner as any type of collected revenue. Deferred revenue is the opposite of a deferred charge. One of the simplest ways to understand the idea behind deferred revenue is by looking at what happens when an employer chooses to extend a salary advance to an employee. While the employee has not yet earned the funds that are extended by the employer, there is a reasonably expectation by both parties that the employee will eventually provide services that justify the compensation. Until the advance is actually earned, the employee essentially owes the amount of the advance to h
