---
title: "Deferred revenue (unearned revenue)"
description: "What deferred (unearned) revenue is, why it is a liability, how it is released to revenue over time, and a subscription example with the journal entries."
canonical: https://ledgeriano.com/glossary/deferred-revenue
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# Deferred revenue (unearned revenue)

> What deferred (unearned) revenue is, why it is a liability, how it is released to revenue over time, and a subscription example with the journal entries.

Deferred revenue, also called unearned revenue or a contract liability, is cash received from customers before the business delivers the goods or services. It is recorded as a liability because the business still owes performance, and it is released to revenue as each obligation is fulfilled, for example month by month over an annual subscription.

Deferred revenue is common in subscriptions, maintenance contracts, gift cards, event tickets and customer deposits. Recording the cash straight to revenue would overstate profit in the month of receipt and leave nothing to match the costs of the later months.

It follows the [accrual basis](https://ledgeriano.com/glossary/accrual-basis): revenue is earned by performance, not by payment. If the business cannot deliver, the customer may be entitled to a refund, which is why the balance stays a liability until the work is done.

## Example: an annual software subscription

A customer pays 2,400 on 1 July for a 12-month subscription. The company credits deferred revenue 2,400 and each month moves 200 to revenue. At 31 December, 1,200 has been earned and 1,200 remains as a liability.

| Date | Account | Debit | Credit |
| --- | --- | --- | --- |
| 1 July | Bank | 2,400 |  |
| 1 July | Deferred revenue |  | 2,400 |
| 31 July | Deferred revenue | 200 |  |
| 31 July | Subscription revenue |  | 200 |

### Is deferred revenue an asset or a liability?

A liability. The business has received cash but still owes goods or services to the customer.

### Is a customer deposit deferred revenue?

Yes, as long as it will be applied to a future sale. Refundable security deposits are a separate liability, not future revenue.