Accounting Standards Codification 430 (ASC 430) was released to address the more specific topic of when to defer revenue rather than recognize it immediately.
Ultimately, until revenue is earned, it must be recorded (deferred) as a liability on the balance sheet. This balance in the liability account therefore represents the sum of the revenue which has been prepaid or has been committed to be paid and is billed to the customer. As this revenue is earned and the company begins to have the claim against it, the liability is then decreased appropriately which in turn is part of the revenue recognition process, marking it as having been earned.
Can Deferred Revenue be recorded when no cash is received?
Conceptually, when people learn about deferred revenue as it is defined under ASC 430, they are given simple illustrations such as a magazine subscription that is paid in advance. However, it is important to note that while deferred revenue can be recorded at the point that cash is received in advance of services, it may also be recognized in the circumstance that a customer is pre-billed for services that are yet to be performed. The offsetting accounting entry to record this as deferred revenue as a debit Accounts Receivable.
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