Deferred Revenue

Deferred Revenue

A company recognises payment from a client in advance of delivery of the goods or services as deferred revenue. As it is technically unearned income, the company records it on the balance sheet as a current liability (assuming fulfilment takes place within a year) or as a long-term liability if fulfilment will take longer. The company reduces the deferred revenue balance by recognising a debit and crediting its revenue account. Depending on the specific terms of the contract, this can be done sequentially as goods/services are delivered, say on a monthly basis, or once all goods/services under the contract have been delivered.

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