Deferred revenue

Deferred revenue,

Definition of Deferred revenue:

  1. Deferred revenue, also known as unearned revenue, refers to advance payments a company receives for products or services that are to be delivered or performed in the future. The company that receives the prepayment records the amount as deferred revenue, a liability, on its balance sheet.

  2. Prepayment received from customers or tenants, and carried forward as a liability until the associated goods, services, or benefits are delivered. Also called deferred liability or deferred credit.

  3. Deferred revenue is a liability because it reflects revenue that has not been earned and represents products or services that are owed to a customer. As the product or service is delivered over time, it is recognized proportionally as revenue on the income statement.

How to use Deferred revenue in a sentence?

  1. Deferred revenue is recognized as earned revenue on the income statement as the good or service is delivered to the customer.
  2. Deferred revenue is a liability on a company's balance sheet that represents a prepayment by its customers for goods or services that have yet to be delivered.
  3. The use of the deferred revenue account follows GAAP guidelines for accounting conservatism.
  4. If the good or service is not delivered as planned, the company may owe the money back to its customer.

Meaning of Deferred revenue & Deferred revenue Definition

What is Deferred Revenue?

Deferred revenue refers to payments received in advance for services which have not yet been performed or goods which have not yet been delivered. These revenues are classified on the company’s balance sheet as a liability and not as an asset.

How Does Deferred Revenue Work?

For reporting purposes, a business must classify all items as either assets or liabilities. Cash, for example, is usually considered an asset. However, if a business receives a prepayment on an order, the prepayment is classified as a liability because the payment represents something that is not yet earned and is therefore owed to the customer. Upon delivery of the good or service to the customer, the deferred revenue is reclassified as an asset. An example of deferred revenue is when a cleaning company accepts the prepayment of its monthly fee for its services in advance for a whole year. The company agrees to provide cleaning services for that year. If the cleaner cannot provide the service at any point during that year, the “unearned” fee must be refunded. The “unearned” portion of that fee is treated as deferred revenue until the monthly service is performed. At that point, the fee is earned and is converted into an asset. Other examples of deferred revenues are advance payments to a software company before the software is completed, advance payment to a plumbing contractor before the installation is completed, or prepayment for an annual subscription to an online service. In each of these cases, the payment is treated as deferred revenues.

Why Does Deferred Revenue Matter?

Deferred revenue is important in accurate reporting of assets and liabilities on a company’s balance sheet. It protects against treating unearned income as an asset, and guards against overvaluing the company’s net worth. While cash is usually the safest asset a company owns, not all cash is equal: Cash that is classified as deferred revenues is at risk until the work is performed. Deferred revenues are important to a company because they finance operations without encumbering other company assets or drawing on a credit line.

Deferred Revenue,

What is The Meaning of Deferred Revenue?

  1. Prepaid expenses, also called non-stop income, refer to the payments that the company receives for products or services that will be supplied or exported in the future. Companies that receive prepayments record this amount in the balance sheet as a prepaid expense, a liability.

    • Prepaid expenses are liabilities on a company's balance sheet that represent an advance payment by its customers for goods or services that have not been provided.
    • Advance expenses when goods or services are delivered to customers are listed as a supply in the income statement.
    • Use of Pre-Expense Accounts follows the GAAP guidelines for the conservative style of accounting.
    • If the goods or services are not delivered as planned, the company owes its customers money.

Literal Meanings of Deferred Revenue

Deferred:

Meanings of Deferred:
  1. Postponed to a later date (action or event).

  2. Send or give credit.

Sentences of Deferred
  1. You postpone the decision until February

  2. Provide superior knowledge to the team

Synonyms of Deferred

bow, hold over, give in, knuckle under, acquiesce, put off, submit, delay, yield, adjourn, give way, postpone, carry over, accede, put back, hold off, surrender, capitulate

Revenue:

Meanings of Revenue:
  1. Income, especially if it is a business or organization and important.

Sentences of Revenue
  1. Merchants have lost 10,000 in revenue since the transportation plan was implemented.

Synonyms of Revenue

takings, income, receipts, earnings, proceeds