Deferred Revenue

What Does Deferred Revenue Mean

A liability account used to collect deposits and other cash receipts prior to the completion of the sale

Deferred revenue is important because it's the money a company collects before it actually delivers a product. For example, a software company sells and receives payment for a computer program before it gets delivered or installed. This doesn't get recorded as straight revenue because, if something goes wrong with the job, the money is at risk

Deferred Charge

What Does Deferred Charge Mean

A prepaid expense that is recognized on the balance sheet as an asset until it is used

Recording deferred charges in this manner ensures that a company is adhering to Generally Accepted Accounting Principles (GAAP) by matching revenues with expenses

A prime example of a deferred charge is rent. Consider the case where a company pays a lump sum to its landlord to cover six months' rent. As each month approaches, the company will use a portion of the funds from its deferred charges account and recognize this portion as an expense on its financial statements. This process ensures that revenues for the month are matched with the expenses incurred for that month