What is deferred revenue?
Deferred revenue is an amount a company has billed or collected for goods or services it has not yet delivered. It sits on the balance sheet as a liability, also called unearned revenue or, under ASC 606, a contract liability, and it moves into revenue on the income statement as the company performs.
How the balance rolls forward
The closing balance is the opening balance plus what was billed, less what was recognised, adjusted for contract modifications and credits. Each month's close is the next month's opening.
Closing deferred revenue = Opening balance + Billed − Recognised + Modifications − Credits
The journal entries: when the invoice is raised, debit accounts receivable and credit deferred revenue; as the service is delivered, debit deferred revenue and credit revenue.
A worked example
In the illustrative example workspace, Gloaming Fescue Inc closes June 2026 with this roll-forward.
| Operation | Line | Figure |
|---|---|---|
| Opening balance, 1 June | $4,182,000 | |
| + | Billed in June | $1,143,000 |
| − | Recognised in June | $987,000 |
| + | Contract modifications | $168,000 |
| − | Credits | $84,000 |
| = | Closing balance, 30 June | $4,422,000 |
The balance is up $240,000 on May, and $0.56M of it is due to be recognised in July. Revenue earned but not yet billed has no line here: it is a contract asset, not a smaller liability.
Common mistakes
Reading deferred revenue as cash
A billed amount can be deferred and still unpaid. The invoice raises receivables and the liability together; the cash arrives separately.Netting it against unbilled revenue
Revenue earned before it is billed is a contract asset. Offsetting the 2 across different contracts hides both balances; they net only within one contract.Recognising a prepayment when it is paid
Payment changes receivables, not revenue. A 12-month prepayment stays deferred and releases month by month as the service is delivered.
How Verlix handles it
The Revenue agent builds each contract's schedule from its obligations, so the deferred balance is the gap between what was billed and what was recognised, never a plug. The roll-forward ties every month, and each line traces to the contract behind it.
Deferred revenue schedulesRelated terms
ASC 606
The US standard for recognising revenue from customer contracts, in 5 steps.Performance obligation
A distinct promise in a contract, the unit ASC 606 allocates and recognises.ARR
The yearly value of committed recurring revenue, measured on one day.