Deferred revenue
Also known as: unearned revenue, contract liabilities
Deferred revenue is cash already received from customers for goods or services that have not 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 it has already collected.
It is one of the few on the that will be settled not with cash but with future performance. It unwinds 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 is 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, which is 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 has not yet shown up in recognised will first inflate deferred revenue, making the movement a leading signal of acceleration or deceleration that the has not yet captured.