Deferred revenue
Also known as: unearned revenue, contract liabilities
Deferred revenue is cash already received from customers for goods or services that haven't yet been delivered or performed. It sits on the as a liability because the company still owes the customer something in return for the payment already collected, and it's one of the few liabilities that will be settled not with cash but with future performance, unwinding into on the as the company fulfils its obligations over time.
The most common sources are software and subscriptions billed annually in advance, maintenance and service contracts, gift cards and loyalty programmes, long term construction and service agreements, and any business model where customers pay before delivery.
Deferred revenue is often described as a high quality liability precisely because it represents future that's already secured and paid for, with no remaining collection risk. A growing deferred revenue balance is one of the most reliable leading indicators of future in subscription businesses, since it represents contracted obligations the company will recognise in coming periods.
Analysts in and software businesses track the relationship between billings, the cash invoiced to customers in a period, deferred revenue on the , and recognised on the , as a triangulation of business momentum. Accelerating billings growth that hasn't yet shown up in recognised will first inflate deferred revenue, making the movement a leading signal of acceleration or deceleration that the hasn't yet captured.
Deferred revenue is split by when it will be earned. The part expected to turn into within twelve months sits in , and the rest sits in . Data sites often label these "Unearned Revenue, Current" and "Unearned Revenue Non-Current".