Deferred revenue is a liability that represents cash received for goods or services not yet delivered or performed. It is recorded on the balance sheet until the related revenue can be recognized as earned income.
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Deferred revenue is considered a current liability if the service is to be provided within one year.
Common examples include subscription fees, advance payments, and retainer fees.
It ensures compliance with the revenue recognition principle in accounting.
Once the service or good is delivered, deferred revenue gets reclassified to earned revenue on the income statement.
Companies must regularly review deferred revenue accounts to ensure accurate financial reporting.