Deferred Revenue
Deferred revenue is money collected for service you haven't delivered yet. It is a liability that becomes recognized revenue as you deliver.
Updated October 1, 2026
Deferred revenue, also called unearned revenue, is money you have billed or collected for service you haven't delivered yet. It sits on the balance sheet as a liability, because you still owe the customer the service. As you deliver, it turns into recognized revenue.
How deferred revenue works
When a customer prepays, you record the full amount as a liability and reduce it as you deliver the service.
Deferred revenue balance = amount billed − amount recognized to date
A customer pays $12,000 for an annual plan in January. All $12,000 is billed and recorded as deferred revenue. You recognize $1,000 each month, so at the end of March the deferred balance is $12,000 − $3,000 = $9,000.
Why it matters
- A large deferred balance is service you still owe, even though the cash is in the bank.
- The change in deferred revenue is the difference between a period's billings and its recognized revenue.
- A growing deferred balance often comes from annual prepaid bookings, which bring cash in early.
Deferred revenue vs MRR
Deferred revenue is an accounting balance of service you still owe. MRR is the monthly run rate of recurring revenue. A customer on a $12,000 annual plan adds $1,000 to MRR while their deferred balance shrinks each month.