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).