Glossarytaught in M1.06, M5.04
Deferred revenue
Also called unearned revenue, contract liability, advance from customers.
Money collected before the service has been delivered, carried as a liability until it is earned.
Take a software firm that collected ₹24,00,000 for a year of service. It has delivered three months, so it still carries ₹18,00,000 of deferred revenue.
Deferred revenue is one of the few forward-looking items on a balance sheet. Growing deferred revenue means customers are committing further ahead, and a falling balance at a subscription company is a revenue decline that hasn't yet reached the income statement.
Read the change in the balance beside reported revenue growth.