Is Deferred Revenue Unearned Revenue?
Both deferred revenue and unearned revenue represent income that a company has received but has not yet earned. However, there is a subtle difference between the two terms.
Deferred Revenue
Deferred revenue is income that a company receives in advance for goods or services that it will provide in the future. This type of revenue is typically recognized on the company’s balance sheet as a liability until the goods or services are provided.
Common examples of deferred revenue include:
- Prepaid subscription fees
- Gift cards
- Magazine subscriptions
Unearned Revenue
Unearned revenue is income that a company receives for goods or services that have already been provided but for which the customer has not yet paid. This type of revenue is typically recognized on the company’s balance sheet as an asset until the customer pays.
Common examples of unearned revenue include:
- Receivables
- Security deposits
- Rent collected in advance
Similarities Between Deferred Revenue and Unearned Revenue
Both deferred revenue and unearned revenue are:
- Income that has been received but not yet earned
- Recorded on the balance sheet
- Recognized as revenue when the goods or services are provided
Differences Between Deferred Revenue and Unearned Revenue
The key difference between deferred revenue and unearned revenue is the timing of the goods or services provided. With deferred revenue, the goods or services are provided in the future, while with unearned revenue, the goods or services have already been provided.
Conclusion
Deferred revenue and unearned revenue are two important accounting concepts that can impact a company’s financial statements. It is important to understand the difference between the two terms in order to properly account for them.
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