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Deferred Revenue

Deferred revenue is a payment that is made in advance of the completion of a contract. It is not considered “earned” and is recorded as a liability on the books until the terms of the contract are fulfilled. Accrued revenue is the opposite of deferred revenue, whereby revenue has been earned and recognized but not yet received. 

Deferred revenue is an important accounting concept for both ASC 606 and IFRS 15 revenue recognition models. Even though the business has increased cash flow, the revenue is not yet recognized because the terms of the contract have not been met.

Related terms

ASC 606
Accounting Standards Codification (ASC) 606 is a standard framework for revenue recognition developed by the Financial Accounting Standards Board (FASB) for companies operating within the United States.
Accounts Payable Automation
Accounts payable automation (AP Automation) refers to the use of technology and software solutions to streamline and optimize the accounts payable process within an organization.
Accrual Accounting
Accrual accounting is an accounting strategy that records payments and expenses when they are earned and incurred. This is different from cash accounting where revenue is recognized when it is actually deposited or transferred. 
Advanced Billing
Advanced billing refers to sophisticated billing practices or capabilities that go beyond basic billing functionalities to address complex billing scenarios, accommodate specialized pricing structures, and support advanced revenue recognition requirements.
Annual Contract Value (ACV)
Annual Contract Value (ACV) is a metric used to assess the average yearly revenue generated by a single customer contract. It helps businesses understand the annualized worth of their customer base, focusing on recurring revenue streams.
Automated Clearing House (ACH)
An Automated Clearing House (ACH) is an electronic network that facilitates the transfer of funds between bank accounts in the United States (and internationally with some variations).