Deferred Revenue

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Definition of 'Deferred Revenue'

Deferred revenue is the amount of revenue that a company has earned but has not yet received. It is a liability because the company has an obligation to provide the goods or services that it has sold. Deferred revenue can arise from a variety of transactions, such as:

* Sales of goods or services on credit
* Subscriptions or other recurring revenue
* Prepaid expenses
* Sales of gift cards or other non-refundable merchandise

Deferred revenue is typically recorded as an asset on the company's balance sheet. When the company eventually collects the cash, the deferred revenue is reversed and the cash is recorded as revenue.

Deferred revenue can be a significant asset for a company, as it represents future cash flows. However, it can also be a liability if the company is unable to collect the cash. For this reason, it is important for companies to manage their deferred revenue carefully.

Here are some additional points to consider about deferred revenue:

* Deferred revenue is not the same as unearned revenue. Unearned revenue is revenue that has been received but not yet earned. For example, if a company receives payment for a product that it has not yet delivered, the payment would be recorded as unearned revenue.
* Deferred revenue is often classified as a current asset. This is because it is expected to be collected within one year. However, deferred revenue can also be classified as a long-term asset if it is not expected to be collected within one year.
* Deferred revenue can be a source of cash flow for a company. This is because the company can use the deferred revenue to pay its expenses or make investments.
* Deferred revenue can also be a risk for a company. This is because the company may not be able to collect the cash, which could lead to a loss.

Overall, deferred revenue is an important concept for understanding financial statements. It is a liability that represents future cash flows, and it can be a source of cash flow or a risk for a company.

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