Definition
Deferred revenue (unearned revenue) is a liability representing customer payments received before the company fulfills its obligation. As services are delivered, deferred revenue converts to recognized revenue. Growing deferred revenue indicates strong future revenue visibility.
Formula
Revenue Recognition: Deferred Revenue → Earned Revenue over delivery period
Example
A SaaS company receives $120M annual subscription payments upfront. Each month, $10M moves from deferred revenue to recognized revenue as service is delivered.
FAQ
What is Deferred Revenue?
Cash received for goods or services not yet delivered.
How do you calculate Deferred Revenue?
A common formula for Deferred Revenue is: Revenue Recognition: Deferred Revenue → Earned Revenue over delivery period
Why is Deferred Revenue important?
Deferred Revenue helps investors evaluate financial statements and make more informed decisions.