Forums Accounting What is deferred revenue?

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    kritinidhi
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    What is deferred revenue?

    #16457

    kritinidhi
    Member

    Deferred revenue is also known as unearned income. Deferred revenue refers to the advance payment for goods and services that are to be delivered in future. In company’s financial accounts deferred revenue is recognized as an obligation of the company because it owes its customers services or products. As the recipients earn revenue over time, it reduces the balance in the deferred account (with debit) and increases the balance in the revenue account (with a credit). The selling entity may not be allowed to recognize as revenue until all goods have been delivered or services completed, this can skew the reported performance of a business to show early losses, followed by profits in later periods. For example- mulberry corporation hires Jason to paint its parking plot and pays $1800 in advance. At the time of payment, Jason has not yet earned the revenues, so it records all $1800 in a deferred revenue account.

    Deferred revenue shares characteristics with accrued expenses, with the difference that a liability to be covered later on goods or services received from a counterpart, while cash is to paid out in a latter period., when such expenses are incurred, the related expense item is recognized and the same amount is deducted from accrued expenses. To put this more clearly- the deferred revenue is the income that the company receives in advance while accrued expenses indicate the income company owes to others.

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