Question

Let's do a search on the term "deferred revenue" in the codification database. Discuss one aspect of the authoritative literature on this topic.

Answer 1

Deferred / unearned income is an advance payment recorded on the recipient's balance sheet as a liability account until the services have been rendered or the products have been delivered. Deferred income is a liability account because it refers to not having won yet, but represents products or services that belong to the client. As the products or services are delivered for a period of time, the income is recognized and recorded in the income statement.

For example: let's say you sell a 2-year support contract for $ 24,000 that starts the following month for a period of 24 months. Once the customer's invoice has been validated, the $ 24,000 must be registered in a deferred earnings account. This is because the $ 24,000 he received has not yet been earned.