What is the journal entry to record deferred revenue?
Deferred revenue must be recorded when the company receives cash from a customer for work that will be performed in the future (i.e. next month, next year, or evenly over a future period).
The visual below gives an example of how the company would record a $10,000 prepayment for work to be performed next month. The company would debit cash for the $10,000 received and credit deferred revenue, which is a liability (remember that a credit to deferred revenue increases the liability).
When the company actually performs the service obligation and recognizes the revenue, the company would debit deferred revenue (decreasing the liability) and credit service revenue (to recognize the revenue).
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How is deferred revenue reflected on the cash flow statement?
Deferred revenue, also referred to as unearned revenue, is a liability (current or non-current) that is recorded when the company receives cash from customers but is not yet able to recognize the revenue. The cash flow impact from changes in deferred revenue is reflected in the operation section of the cash flow statement. When deferred […]