Deferred revenue.

In plain English

Deferred revenue is cash received in advance for goods or services the company still owes, recorded as a liability rather than as revenue. As the company delivers, it moves amounts out of deferred revenue and into revenue on the income statement, month by month or milestone by milestone. It counts as a liability because if the company never delivers, it owes the customer a refund. For subscription businesses the deferred revenue balance is a rough read on work already paid for and still to come. A shrinking balance while reported revenue holds steady can mean new sales are slowing.

01Why it matters

A company can be sitting on a pile of cash that is not its own money yet, and deferred revenue is the line that tells you how much of that pile still has to be worked off.

02The math, step by step

Say a magazine collects 240,000 dollars in January for one-year subscriptions. It records 240,000 dollars of cash and 240,000 dollars of deferred revenue, not revenue. Each month it recognizes 20,000 dollars (240,000 divided by 12), so by June revenue is 120,000 dollars and 120,000 dollars is still deferred.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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