{"id":21499,"date":"2025-04-08T12:03:16","date_gmt":"2025-04-08T11:03:16","guid":{"rendered":"https:\/\/www.sage.com\/en-gb\/blog\/?post_type=sage_glossary&#038;p=21499"},"modified":"2025-04-08T12:03:18","modified_gmt":"2025-04-08T11:03:18","slug":"what-is-deferred-revenue","status":"publish","type":"sage_glossary","link":"https:\/\/www.sage.com\/en-gb\/blog\/glossary\/what-is-deferred-revenue\/","title":{"rendered":"What is deferred revenue?"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-gb\/blog\/glossary\/\" class=\"entry-header__link\">Glossary definition<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tWhat is deferred revenue?\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"What is deferred revenue?\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-gb\/blog\/glossary\/what-is-deferred-revenue\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n<\/header>\n\n\n\n<p>You have deferred revenue when you receive payment for goods services that you have not yet delivered or completed.<\/p>\n\n\n\n<p>Simply put:<\/p>\n\n\n\n<p><strong>Deferred revenue = invoicing > revenue<\/strong><\/p>\n\n\n\n<p>If you use <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/cash-and-accrual-accounting\/\">accrual accounting<\/a> and only recognise earned revenue, you would record prepayments as a liability on your balance sheet.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Tracking performance obligations<\/h2>\n\n\n\n<p>You also need to track your performance obligations to decide when to recognise your deferred revenue. <\/p>\n\n\n\n<p>For example, your promised goods and services, such as the right to use your software to accomplish a task (payroll, expenses, social, etc).<\/p>\n\n\n\n<p>Performance obligations are explicitly stated in your contract and may include something not stated but common in your business processes. <\/p>\n\n\n\n<p>This makes it important to know and track stated promises your business practices.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-deferred-revenue-and-revenue-recognition\">Deferred revenue and revenue recognition<\/h2>\n\n\n\n<p>Many industries may have deferred revenue. Bottom line (no pun intended), they all must meet the same UK GAAP and IFRS 15 revenue recognition requirements.<\/p>\n\n\n\n<p>For example, if you have a\u00a0subscription-based business model, or a software as a service (SaaS) business, you likely have a variety of subscription or usage billing scenarios and therefore a complex revenue recognition schedule. <\/p>\n\n\n\n<p>Many SaaS companies choose to automate their revenue recognition process to properly record deferred revenue to:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Meet\u00a0IFRS 15\u00a0requirements<\/li>\n\n\n\n<li>Ensure billing and invoicing are automatically updated with contract changes<\/li>\n\n\n\n<li>Keep their SaaS metrics reflecting real-time data.<\/li>\n<\/ul>\n\n\n\n<p>Professional services organisations\u00a0may also have deferred revenue. Unless your business strictly contracts on time and materials, you may need to account for deferred revenue. <\/p>\n\n\n\n<p>If you bill for a project, and are yet to fully complete the work, you have deferred revenue. <\/p>\n\n\n\n<p>If your business uses pre-payments, managed services, subscriptions and even fix-fee and milestone invoicing, you may have to account for deferred revenue and ensure you comply with IFRS 15.<\/p>\n\n\n\n<p>Tracking may involve a deferred revenue waterfall. <\/p>\n\n\n\n<p>It reconciles your deferred revenue account balance on your balance sheet and provides a forecast of your expected revenue stream in the future.<\/p>\n\n\n\n<p>You can use accounting software to help you\u00a0automate <a href=\"https:\/\/www.sage.com\/en-gb\/sage-business-cloud\/intacct\/product-capabilities\/extended-capabilities\/revenue-recognition\/\">revenue recognition<\/a>, properly record deferred revenue, and navigate other accounting and financial management requirements.<\/p>\n\n\n<div class=\"single-cta\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Subscribe to the Sage Advice newsletter<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p>Join more than 500,000 UK readers and get the best business admin strategies and tactics, as well as actionable advice to help your company thrive, in your inbox every month.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-b1a63862-3fa0-4a5e-bb67-c76b88bbc6b8\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Subscribe now<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2022\/04\/GettyImages-1073797282-1-1440x810.jpg\" class=\"single-cta__image\" alt=\"\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2022\/04\/GettyImages-1073797282-1-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>You have deferred revenue when you receive payment for goods services that you have not yet delivered or completed. Simply put: Deferred revenue = invoicing > revenue If you use accrual accounting and only recognise earned revenue, you would record prepayments as a liability on your balance sheet. Tracking performance obligations You also need to [&hellip;]<\/p>\n","protected":false},"author":346,"featured_media":0,"template":"","meta":{"_sage_video":false,"footnotes":""},"tags":[23,159,311],"class_list":["post-21499","sage_glossary","type-sage_glossary","status-publish","hentry","tag-bookkeeping","tag-midsized-business","tag-payments"],"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice UK","distributor_original_site_url":"https:\/\/www.sage.com\/en-gb\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/sage_glossary\/21499","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/sage_glossary"}],"about":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/types\/sage_glossary"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/users\/346"}],"version-history":[{"count":0,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/sage_glossary\/21499\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/media?parent=21499"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/tags?post=21499"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}