Deferred revenue, rolled forward
2400 Deferred revenue through October: what came in, what was earned, what is still owed, and what billing up front does to it.
The $1,375 left at October 31 is servicing Northwind has been paid for and still owes. Contracted work not yet done is what a company calls its remaining performance obligations. Here they equal the deferred balance, because the whole contract was billed up front; on a contract billed monthly they would be larger than it.
Bill the year up front
- Good at
- Cash arrives on day one
- One invoice to chase instead of twelve
- Watch for
- A large deferred revenue balance to roll forward every month
- A refund to owe if the customer cancels
- Best for
- A seller that needs the cash now and can carry the liability
Bill monthly as delivered
- Good at
- Revenue, invoice and cash land in the same month
- Little or no deferred revenue to track
- Watch for
- Twelve invoices, and twelve chances to be paid late
- Less cash up front
- Best for
- A customer that won't prepay, or a service still being proven
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Anything marked as a convention is ours, not the rule-maker's.
- US GAAP
- ASC 606-10-45-2 (opens in a new tab)Deferred revenue is a contract liabilityFree after registration
The full map is in US GAAP, and where these rules come from.
The words this page teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Deferred revenueConsideration 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
- Roll-forwardOpening → movements → closing, provenConvention
- Remaining performance obligationsTransaction price allocated to obligations not yet satisfied — deferred revenue plus contracted, unbilled amounts — disclosed with when it is expected to be recognized
See also
- 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.
- 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.
- Deferred revenue vs accrued revenueBilling or collecting ahead of the work creates deferred revenue, a liability. Doing the work ahead of the bill creates accrued revenue, an asset.
- 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.
- Deferred revenueMoney a customer has paid, or owes on a noncancelable invoice, for something you haven't delivered yet. It's a liability until you earn it.
- RollForwardOpening → movements → closing → tie. The universal shape.
- RevenueWaterfallDeferred balance recognizing by future period.