Deferred Revenue Is What Type Of Account

Deferred income also known as deferred revenue unearned revenue or unearned income is in accrual accounting money received for goods or services which has not yet been earned according to the revenue recognition principle it is recorded as a liability until delivery is made at which time it is converted into revenue.

Deferred revenue is what type of account. For example a company receives an annual software license fee paid. The deferred revenue account is normally classified as a current liability on the balance sheet. Example of deferred revenue. Deferred revenue or unearned revenue is the amount of advance payments which the company has received for the goods or services which are still pending for the delivery or provision respectively and its examples include like an annual plan for the mobile connection prepaid insurance policies etc.

Deferred revenue or unearned revenue refers to advance payments for products or services that are to be delivered in the future. However deferred revenue is actually reported. The bottom line deferred or unearned revenue is an important accounting concept as it helps to ensure that the assets and liabilities on a balance sheet are accurately reported. The types of deferred revenue that might make up the account balance depend on the type of business.

Deferred revenue is a liability account that represents the obligation that the company owes to its customer when it receives the money in advance. For contractors deferred revenue may include contracts for maintenance on equipment and facilities but for an information technology company it may include contracts to service and repair computers and software. By the end of the fiscal year the deferred revenue balance will be zero and all of the payments will become revenue on the income statement. It can be classified as a long term liability if performance is not expected within the next 12 months.

To illustrate deferred revenue let s assume that a company designs websites and has been asked to provide a price quote for a new website. Examples of deferred revenue. As the deferred amount is earned it should be moved from unearned revenues to an income statement revenue account such as sales revenues service revenues fees earned etc. At first glance the deferred revenue account would seem to be a revenue or income account that would be included on a company s income statement.

The recipient of such prepayment records unearned revenue as a. Types of deferred revenues.