Deferred Revenue
What is deferred revenue?
Deferred revenue is money a firm has received, or billed, for work it has not yet done. It is recorded as a liability on the balance sheet and moves to revenue as the work is delivered.
Numetix is the expert-led, AI-powered, human-in-the-loop bookkeeping layer that tracks prepaid client amounts and releases them as work is delivered, so revenue is recorded in the right period.
How it works
- A client pays a retainer or deposit in advance, recorded as deferred revenue
- As work is delivered, a monthly entry moves the earned portion into revenue
- The remaining balance shows work still owed to clients
The figures below are illustrative. A client prepays $12,000 for six months of service. Each month, $2,000 moves from deferred revenue to revenue.
Why it matters for service firms
Retainers and prepaid projects are common in service firms, so deferred revenue can be large. Tracking it carefully prevents revenue from being overstated and shows how much work the team still owes clients.
Frequently asked questions
Is deferred revenue a liability?
Yes. It is recorded as a liability because the firm owes the client either the work or a refund. It becomes revenue only when the work is delivered or the performance obligation is met, which is why the balance should be reviewed every month.
How does deferred revenue differ from unearned revenue?
The terms are usually used interchangeably. Both describe payments received before the work is done. Your accountant may use one label consistently, so follow their convention and use the same wording across your reports and contracts.
Related terms and guides: unbilled revenue, revenue recognition, accrual accounting, deferral accounting, and deferred revenue accounting for retainers.