Deferred Revenue Normal Balance

If your company has deferred revenue even for longer than a 12 month period it would follow the relevant accounting guidance to report its deferred revenue on the financial statements.

Deferred revenue normal balance. The credit to the deferred revenue account represents a liability as the service still needs to be provided to the customer. The deferred revenue account typically has which type of normal balance. The normal balance of any account is the balance debit or credit which you would expect the account have and is governed by the accounting equation. Valuing the deferred revenue liability would mainly be important in a business combination situation.

Deferred revenue or unearned revenue refers to advance payments for products or services that are to be delivered in the future. Deferred revenue recognition will happen as soon as the service is provided. The deferred revenue account is normally classified as a current liability on the balance sheet. Hence 1000 of deferred income will be recognized as service revenue.

It can be classified as a long term liability if performance is not expected within the next 12 months. It is how deferred revenue on the balance sheet will look like. Each of the accounts in a trial balance extracted from the bookkeeping ledgers will either show a debit or a credit balance. The normal balance of any account is the balance debit or credit which you would expect the account have and is governed by the accounting equation.

In the above example the maintenance contract costs 12 000 for 1 year assuming the business produces monthly. Thus it will accrue its earning. Now after working for a month mnc has earned 1000 i e it has provided its services to xyz. The recipient of such prepayment records unearned revenue as a.