Question

Deferred revenue is common in businesses where customers prepay for a subscription or service, for example. In Tesla's case, these aren't just self-driving features that have yet to be activated but certain other services, including access to Tesla's Supercharger network and internet connectivity.

Explain Tesla’s use of recognizing "deferred revenue" on certain pre-paid packages to log revenue over time and strategically offset operating costs. Is Tesla able to choose in which quarters such revenue is recognized? Is this practice beneficial?

Answer 1

Deferred revenue is the unearned income on which no goods or services were provided.

In case of deferred revenue the income is recognized on the date on which the services are provided. If it is provided on a proportional basis then the portion of goods or services provided is recognized as revenue and the balance is a liability.

In case of Tesla they were received a lots of amount as deferred revenue. They will recognize revenue on the basis of services provided. The quarter they provide services are treated as the quarter they earned revenue.

This practice is always beneficial because they will receive a huge amount of money as advance in the starting of the financial year.