Deferred Revenue
Deferred revenue is consideration received or billed before the related goods or services have been delivered. It is recognized as revenue when the company performs.
Billing
Explanation
Typical examples:
• annual subscriptions or maintenance fees billed upfront,
• prepaid service packages or credits,
• down payments on customer orders,
• the portion of a bundled price allocated to services still to be delivered.
Under ASC 606 and IFRS 15, the formal term is contract liability. Many companies continue to use "deferred revenue" in their chart of accounts and reporting. Contract assets and contract liabilities are presented net at the contract level.
Why It Matters
For subscription and service businesses, deferred revenue is a key metric watched by investors, because it indicates revenue already contracted and billed. It must be calculated accurately, reconciled with billing and the general ledger, and explained in disclosures – including how much of the opening balance was recognized as revenue during the period.
Related Terms
Contract Liability · Contract Asset · Recurring Billing · Down Payment · Unbilled Revenue · Remaining Performance Obligation (RPO) · Annual Recurring Revenue (ARR)
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