Deferral Revenue Income Statement

As a result the unearned amount must be deferred to the company s balance sheet where it will be reported as a liability.

Deferral revenue income statement. The credit to the deferred revenue account represents a liability as the service still needs to be provided to the customer. Deferred revenue recognition in a 2 way step. What is deferred revenue. Deferred revenue is an aspect of what is called the accrual basis of accounting.

Increasing the cash and increasing deposit deferred income on the liability side. In other words deferred revenues are not yet revenues and therefore cannot yet be reported on the income statement. Deferred revenue is also known as unearned revenue or deferred income it s payment received by a company in advance for services it has not yet provided or goods it has not yet delivered. In the above example the maintenance contract costs 12 000 for 1 year assuming the business produces monthly.

Under the accrual basis of accounting revenues are recorded on the income statement when they are earned rather than received. Deferred revenue or unearned revenue refers to advance payments for products or services that are to be delivered in the future. This contrasts with the cash basis of accounting wherein the opposite is true. The recipient of such prepayment records unearned revenue as a.

Similarly this will impact the cash flow statement of the company. Deferred revenue is money received by a company in advance of having earned it.