What is deferred revenue?

Deferred revenue, or unearned revenue, is money a business receives upfront for goods or services it has not yet delivered. Because the business still has an obligation to deliver the product or service in the future, deferred revenue is recorded as a liability until the revenue is earned.

Example: A software company receives an annual subscription payment upfront and recognizes the revenue gradually over the subscription period.

Related terms: Accrual Accounting, Liabilities, Income Statement