Q15RQ - Horngren'S Financial And Managerial Accounting

Question

What is a deferred revenue? Provide an example.

Step-by-Step Solution

Answer

Deferred revenue refers to the revenue which has not been earned  today, but will be earned in future. Example : Advance payment received from the customer for services to be provided next year.

Step 1: Explanation on Revenue

Revenue is the income of the business entity, which indicates the value of goods or service which will be received from the customer.

Step 2: Treatment of Deferred Revenue

Deferred revenue is initially recorded as liability in the balance sheet, and when the goods or services are provided to the customer, revenue is recorded and liability is decreased.