← Glossary GLOSSARY

Deferred revenue

Cash you have collected for goods or services you have not yet delivered.

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The longer version

When a customer pays you for an annual contract on day one, only one month of that payment is earned in the first month. The remaining eleven months sit on your balance sheet as deferred revenue — a liability — and release into revenue as the obligation is satisfied.

Why it matters in your books

Annual subscriptions, prepaid retainers, and milestone work all create deferred revenue. Booking the whole prepayment as revenue on day one inflates current-period income and lies to whoever is reading the financials.