Normal Balance For Deferred Revenue

Record the deferred revenue.

Normal balance for deferred revenue. Deferred revenue which is also referred to as unearned revenue is listed as a liability on the balance sheet because under accrual accounting the revenue recognition process has not been. It can be classified as a long term liability if performance is not expected within the next 12 months. Deferred revenue is a liability account which its normal balance is on the credit side. Deferred revenue is sometimes called unearned revenue deferred income or unearned income.

The recipient of such prepayment records unearned revenue as a. As you deliver goods or perform services parts of the deferred revenue become earned revenue. An asset is normally a debit balance so a contra asset account such as accumulated depreciation is normally a credit balance using the normal balance although each account has a normal balance in practice it is possible for any account to have either a debit or a credit balance depending on the bookkeeping entries made. In the example from part 1 the company receives a 120 advance payment relating to a twelve month magazine subscription.

Deferred revenue or unearned revenue refers to advance payments for products or services that are to be delivered in the future. For example if you charge a customer 1 200 for 12 months of services 100 per month will turn into earned revenue while the remaining amount will still be deferred revenue. The deferred revenue account is normally classified as a current liability on the balance sheet. The company receives cash an asset account on the balance sheet and records deferred revenue a liability account on the balance sheet.

Contra asset normal balance. When the company receives payment.