Deferred revenue
In accounting, deferred revenue means consideration received, or unconditionally due, before the goods or services are transferred — a liability until the performance obligation is satisfied. ASC 606 calls it a contract liability.
- Layer
- Lexicon
- Defined in
- Lexicon
- Also called
- Contract liability
- Components
- 3
Authority
This definition follows ASC 606-10-45 — contract liability.
Every citation in this system, with the text we read and the date we checked it, is in US GAAP and where these rules come from.
The lessons that teach this
Accounting, 0 to 1 — a free course taught end to end on one month of one company, with the spreadsheet exercises to work it yourself.
- 05Recording the monthThirteen things happened to Northwind in September. Here is every one of them turned into an entry, with the reasoning that produced it.13 min
- 08Cash, accrual and cut-offCash accounting records when money moves. Accrual records when value moves. Every hard question in the rest of the course lives in the gap between the two.9 min
- 09Adjusting entriesThree entries nobody sends an invoice for, made on the last day of the month, that turn a record of transactions into a set of accounts.12 min
Deferred revenue, in use
Quoted from the 4 documents that use the word — what it does to an interface, in the spec's own sentence.
Prepaids, accruals, deferred revenue, fixed assets, intangibles, leases, equity, allowances, and inventory reserves are all this shape.
Schedules, accruals & roll-forwards — 1. The universal roll-forward
Prepaids, accruals, deferred revenue, fixed assets, intangibles, leases, debt.
Shows the revenue recognition preview per line before posting — whether each line credits revenue or deferred revenue, and on what schedule.
For founders
The same idea written for a founder: what it costs a startup that ignores it, and what to do in a real month.
- Deferred revenueMoney a customer has paid, or owes on a non-cancellable invoice, for something you haven't delivered yet. It's a liability until you earn it.
- Deferred revenue for SaaS startups, explainedAn annual prepayment is cash today and revenue over a year. How deferred revenue works under ASC 606, why it’s a liability, and the schedule behind it.
- Balance sheet explained for startupsAssets equal liabilities plus equity. What each startup line means, from deferred revenue to the SAFE and the accumulated deficit, and why it must balance.
- SaaS revenue recognition under ASC 606, step by stepASC 606’s five steps applied to a startup SaaS contract: annual prepay, implementation fees, usage and multi-year deals, with the entries.
What it is not called
Each of these is a real word for a different thing. Using it here is what makes a product read as though it was built by someone who has not done the work.
- unearned income
- revenue
Components that render this
The concept is not documentation-only. These are the components that name it in their specification, grouped and stated exactly as the catalog states them.
10Receivables (AR)
Family specComponents that render the terms it depends on
Little in the catalog names this concept outright, but its definition is built out of others that are named. These render liability, revenue.
Terms this one depends on
- Performance obligationA promise in a contract to transfer a distinct good or service, or a series of substantially the same ones — the unit revenue is recognized by
- LiabilityA present obligation of the entity to transfer an economic benefit (FASB CON 8 ¶E37)
- RevenueInflows or enhancements of assets, or settlements of liabilities, from delivering goods or services — recognized when control transfers, not when cash arrives
Also in Foundations
Work with this concept
The calculators that compute it and the ledger payloads that carry it. A definition is where a reader starts; these are where they go next.
- Prepaid & deferred releaseA premium paid on the 17th does not release in twelve equal slices. Day-weighted, or even — your call.Tool
- Deferred revenue vs accrued revenueDeferred revenue is cash billed or received before the work is done, a liability; accrued revenue is work done before it is billed, an asset — they are the same timing gap in opposite directions.Compare
- Journal entry for deferred revenueWhen an annual contract is invoiced up front, debit Accounts receivable and credit Deferred revenue. As each month of service is delivered, debit Deferred revenue and credit Revenue for that month's share.Entry
- Journal entry for a customer depositWhen a customer pays a deposit, debit Cash and credit Customer deposits. On delivery, debit Customer deposits for the deposit, debit Accounts receivable for the balance, and credit Revenue for the full price.Entry
- Journal entry for a bundled contract under ASC 606For a contract with several promises, debit Accounts receivable and credit Deferred revenue for the price when billed, allocate the price to each performance obligation by relative standalone selling price, and credit Revenue for each part as that promise is satisfied.Entry
Defined in Lexicon. This page is generated from that document, so the two cannot disagree.