what is deferred revenue

Deferred revenue, also known as unearned revenue, is a term used in accrual accounting to describe money received for goods or services that have not yet been earned. According to the revenue recognition principle, deferred revenue is recorded as a liability until delivery is made, at which time it is converted into earned revenue. Deferred revenue is recognized as earned revenue on the income statement as the good or service is delivered to the customer. The use of the deferred revenue account follows GAAP guidelines for accounting conservatism. Examples of deferred revenue include rent payments received in advance, annual subscription payments received at the beginning of the year, and prepayment received for newspaper subscriptions. Accounting for deferred revenue involves reporting it as a liability on the balance sheet, and as the income is earned, the liability is decreased and recognized as income.