What is ‘Deferred Revenue.’
Deferred revenue is also sometimes referred to as the unearned revenue, which is the concept that highlights the concept of making the advance payments way before the goods or services are delivered.
Hence the recipient of this payment marks it as the unearned liability on the balance sheet mainly because it is also considered as the revenue that is not yet earned.
The products or services are delivered over time hence it s also considered as revenue on the income statement of the company.
#Understanding the Concept of Deferred Revenue in Detail
The idea of deferred revenue is seen as an obligation that is mentioned on the balance sheet as once the company receives the advance payment then it owes the customers products and services for which they have paid for.
This concept of deferred revenue is common in companies that deal mainly in selling different kinds of subscription-based services.
All the subscription-based services require payments to be made in advance and after that, the services are provided to the customers.
Once the products or services are delivered to the intended consumers, then it is mentioned in the income statement of the company.
Hence the financial analysts tend to conduct an in-depth analysis of the deferred revenue accounts to identify or get an indication linked to the financial performance of the company.
The concept of mentioning the deferred revenues on the income statement of the company rather than on the balance sheet of the company is an example of aggressive accounting mainly because it impacts the revenues of the company.
#How Deferred Revenue should be reported?
As mentioned above, the deferred revenue is mentioned as the current liability on the balance sheet of the company that is responsible for delivering goods and services to the customers.
Moreover, if the delivery is extended over a period of years, then a portion of the payment has to be made to the company after 12 months.