• Content
  • Business
  • Social Media
  • Branding
  • Ads
  • How To

Why And How To Use Deferred Revenue In Your Business


After a good sales season, the sensation of having money in your pocket is both exhilarating and possibly disastrous for your business.Do not confuse "cash on hand" with "actual income."The mere fact that you have income does not imply that it has been "earned."

In subscription SaaS firms, this mismatch is more typical, since clients are charged in advance of receiving a service.The money you've received for a product or service that hasn't been delivered on time is called "delayed revenue" or deferred revenue.

Profiting from delayed income will pay dividends for your company in the future, but not immediately.

Deferred revenue explained

Deferred Revenue

COPYRIGHT_MARX: Published on https://marxcommunications.com/deferred-revenue/ by Keith Peterson on 2022-03-01T14:38:31.590Z

Earned but not yet reported revenues are known as deferred revenues, or unearned revenue.Deferred revenue is the designation given to the income that will be collected at a later period when the real services are rendered.Until the revenue is recorded in the financial statements, deferred revenue should be identified and recorded as an asset.

Suppose a company owner wants to import a piece of equipment from the United States that costs 100,000 Indian rupees.An advance on the order's total value may be requested by the seller from the other side of the world.In this example, let's say that an advance payment of 10,000 INR was required.Once the invoice is issued and the equipment is received, this sum will be deducted from the company's assets.

How Does Deferred Revenue Function?

It is a liability on a company's balance sheet that gets an advance payment. Deferred revenue is regarded as a liability."A duty to the customer is owed by this provision, which comes with the products or services they provide.

Due to the danger of the goods or service not being provided, or the client canceling the transaction, the payment represents a liability to the provider.If no additional conditions of payment were included in a signed contract, the firm would be required to reimburse the client.

In certain cases, contracts might dictate that no income should be recorded until all services or items have been provided.In other words, until the client has earned the entire amount due under the contract, the cumulative payments will remain in accruing revenue.

How Is Deferred Revenue Reported?

Due to the short-term nature of deferred revenue, it is often recorded as a current liability on a company's balance sheet.It's still possible for a customer to pay in advance for services that aren't expected to be offered for many years.It will be reported on the balance sheet's long-term liabilities section as deferred revenue for the part of the expenditure pertaining to services or items that will be given after the date of expenditure.

Why Is Deferred Revenue Considered A Liability?

The service may not be supplied or the client may cancel their purchase, in which case the money must be reimbursed, until delivery has been completed.Deferred revenue is a liability since you've been paid for a product or service that you haven't yet provided.And that's why you'll see it listed with other current obligations on your balance sheet.

Many SaaS businesses keep track of their income using the accrual approach to avoid any misunderstandings.Only after a transaction has been completed and payment has been received does accrual accounting record revenue.Only once your organization has generated the money is it recognized.

How To Make Your Deferred Revenue Accounting Audit-proof

Deferred revenue problems may have a negative impact on your subscription company.The majority of companies depend on more sophisticated methods of revenue recognition and accounting.In the subscription and SaaS environment, finance and accounting staff employees are the unsung heroes.These strategies will help them keep your business out of danger.

Deferred Revenue May Be Used To Reduce Human Mistakes

Maintaining compliance with standards and handling hundreds of lines in a spreadsheet may be a challenge in revenue recognition.

ProfitWell's AI-based approach to revenue recognition minimizes human error, which is inherent in this scenario.

Get Deferred, Recognized, And Recurring Revenue Reports

It is also possible to automate reporting on different sorts of income, enabling you to keep track of precisely which revenue has been recognized, and which remains to be realized.

With deferred revenue accounting, you're forcing yourself to resist the temptation of investing as-yet-unearned cash in a crucial new endeavor your firm knows it needs, rather than using a recent increase in subscriptions to smooth over that recent fall in recognized income.

An accurate picture of your company's current position and future development can only be achieved via careful consideration of deferred revenue.


Accurately recording assets and liabilities on a balance sheet is critical.Unearned income is not included on the asset side of the balance sheet since deferred revenue is reported there.As a result, the net value of the firm is not overestimated.

Share: Twitter | Facebook | Linkedin

About The Authors

Keith Peterson

Keith Peterson - I'm an expert IT marketing professional with over 10 years of experience in various Digital Marketing channels such as SEO (search engine optimization), SEM (search engine marketing), SMO (social media optimization), ORM (online reputation management), PPC (Google Adwords, Bing Adwords), Lead Generation, Adwords campaign management, Blogging (Corporate and Personal), and so on. Web development and design are unquestionably another of my passions. In fast-paced, high-pressure environments, I excel as an SEO Executive, SEO Analyst, SR SEO Analyst, team leader, and digital marketing strategist, efficiently managing multiple projects, prioritizing and meeting tight deadlines, analyzing and solving problems.

Recent Articles

  • How To Fix The Samsung Logo Boot Loop (7 Possible Solutions)

    Tech Tips

    How To Fix The Samsung Logo Boot Loop (7 Possible Solutions)

    The Samsung logo screen is often an iconic symbol of reliability and performance, but what happens when a Samsung Galaxy stuck at Samsung logo screen? A frustrating and perplexing problem indeed!

  • Is Broadcasting A Good Career Path?


    Is Broadcasting A Good Career Path?

    Broadcasting, also known as mass communication, involves transmitting information and entertainment content to a large audience through various media platforms, including television, radio, and the internet. It is a dynamic and ever-evolving field that offers exciting opportunities for those looking to pursue a career in it. But is broadcasting a good career path? Let's take a closer look

  • Transformer Response Optimization - Techniques For Improved Performance


    Transformer Response Optimization - Techniques For Improved Performance

    The Transformer model has been widely used for response generation due to its ability to capture long-range dependencies and produce high-quality responses. Transformer response optimization is a technique used to improve the quality of generated responses.

  • Off-Page SEO Hacks - Drive More Traffic To Your Website


    Off-Page SEO Hacks - Drive More Traffic To Your Website

    If you are looking to improve your website's ranking on search engine results pages (SERPs), you need to focus on both on-page and off-page SEO. While on-page SEO includes optimizing your website's content and structure, off-page SEO is about improving your website's authority and credibility on the internet. In this article, we will discuss some off-page SEO hacks that can help you boost your website's ranking.

  • Understanding SEO Poisoning - Protecting Your Online Security


    Understanding SEO Poisoning - Protecting Your Online Security

    Search Engine Optimization (SEO) poisoning is a type of attack that involves manipulating search engine rankings to drive traffic to malicious websites. This tactic is used by cybercriminals to spread malware, steal personal information, and conduct phishing attacks. In this article, we will explore what SEO poisoning is, how it works, and what you can do to protect yourself.

  • Top 12 Proven Ideas To Make Money On TikTok


    Top 12 Proven Ideas To Make Money On TikTok

    Are you ready to turn your TikTok addiction into cold, hard cash? Well, you're in luck because today we're going to be discussing how to make money on TikTok! Yes, you read that right - you can actually get paid for scrolling through your For You Page and creating content that makes people laugh, cry, or dance like crazy.

  • What Is A Zero-Based Budget, And How Do I Utilize One?


    What Is A Zero-Based Budget, And How Do I Utilize One?

    Are you tired of feeling like your money is disappearing into a black hole? Do you find yourself struggling to make ends meet at the end of the month, despite your best efforts? If so, it's time to try a different approach: zero based budgeting!

  • What Do Transportation Jobs Pay?


    What Do Transportation Jobs Pay?

    Transportation jobs are an essential part of the economy, as they ensure that goods and people are moved efficiently from one location to another. Whether you're interested in becoming a truck driver, a pilot, or a railway worker, you may be wondering what do transportation jobs pay. In this article, we'll explore the salaries and job outlooks for some of the most common transportation jobs.

  • SEO Vs Web Developers - What Is Their Difference?


    SEO Vs Web Developers - What Is Their Difference?

    In the world of website development, there are two key players that are essential for the success of any website: SEO vs web developers. While both are important, they often have different goals and objectives, which can sometimes lead to conflict.

  • Entity SEO - Why Every Business Needs To Implement It

  • IPhone Speaker Broken Or Not Working? Let's Fix It With 8 Ways

  • Nintendo Switch Controller Not Connecting? How To Fix It

  • Is Data Entry A Good Career Path?

  • Enterprise SEO Trends - What You Need To Know