Deferred Revenue
Deferred revenue, also known as unearned revenue, is an accounting concept where a company receives payment for goods or services before they are delivered or performed. It is recorded as a liability on the balance sheet because the company owes the customer the product or service, and it is recognized as revenue over time as the obligations are fulfilled. This concept is crucial for accurate financial reporting under accrual accounting principles.
Developers should understand deferred revenue when building financial software, subscription-based platforms, or e-commerce systems to ensure proper revenue recognition and compliance with accounting standards like GAAP or IFRS. It is essential for handling scenarios such as annual software subscriptions, prepaid services, or advance ticket sales, where revenue must be allocated across multiple periods rather than recognized all at once.