Deferred revenue
Also called: unearned revenue, contract liabilities, advances from customers, customer advances
Cash a company has received for goods or services it has not yet delivered. It is a liability until the work is done.
Under accrual accounting, money received in advance is not revenue yet. It sits on the balance sheet as a liability, because the company owes the customer the goods or service, and moves into revenue as the company delivers.
Large deferred revenue usually means customers pay in advance, which helps a company's cash flow.
Example
A coaching institute that collects ₹12 lakh in April for a year-long course has earned ₹3 lakh by June; the other ₹9 lakh is deferred revenue.
Learn more in these lessons
- Accrual accounting and cash accountingWhat is the difference between accrual and cash accounting?
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