Deferred Revenue

Deferred revenue is a liability that is created when monies are received by a company for goods and services not yet provided. Revenue will be recognized, and the deferred revenue liability eliminated, when the services are performed. Deferred revenue stems from the accounting concept of revenue recognition, under which revenues are recognized only when the earnings process is complete. If funds are received and no goods or services have yet been provided, the process is not complete; thus revenue cannot be recognized, and a deferred revenue liability is recorded. Specifically, the deferred revenue account is credited, and cash (or other assets) are debited. Deferred revenue is recorded in specific industries under particular circumstances. For instance, a software company might post deferred revenue for a maintenance agreement under which services will be provided over several years. A golf club provides another example: it might record deferred revenue for member initiation fees and recognize the revenue as the players shoot their rounds.