What is deferred revenue? #cpa #debitsandcredits #accounting101 #accrualaccounting #deferredrevenue

Added: 2026-05-25

[00:00:00]All right, guys. Let's talk about deferred revenue.

[00:00:03]My name is Kerstin. I'm a CPA and I teach accounting and I'm going to help you with deferred revenue today.

[00:00:08]So, first things first. Deferred revenue is actually a liability account. It is a liability. It sits on your balance sheet. It is sometimes also called unearned revenue.

[00:00:20]But, Kerstin, supplies expense is an expense, salaries expense is an expense, rent expense is an expense. Why isn't deferred revenue revenue? So, what is a liability account? A liability account is when you still owe somebody something. Liabilities, remember, are what you owe as a business.

[00:00:38]So, someone has paid you up front for services or goods that they haven't received yet. So, they've given you cash and you have recorded this unearned revenue or deferred revenue account. So, what do you actually still owe? What do you owe? You owe that good or service.

[00:00:55]Therefore, your unearned revenue is a liability.

[00:00:59]If you can't tell, I am going to a show tonight. I'm going to a concert. So, I paid for these tickets about 2 weeks ago. I handed over my money to Axis and they gave me concert tickets. However, if the show gets canceled, moved, delayed, if something happens, they still owe me my money back or they owe me that service later on down the road.

[00:01:25]So, if the show gets canceled, they would have to refund everybody that bought tickets. If the show got rescheduled, they couldn't recognize that revenue until they actually provide that service, the concert.

[00:01:38]It's the same thing with airline tickets. You purchase an airline ticket and that airline cannot recognize revenue until they get you from point A to point B. Until you get to point B, they still owe you that service. So, they, the company, recognizes revenue on the day that they provide you with the service, you can only recognize revenue when you provide the good or service.

[00:02:03]So, until you provide that good or service, you have this liability or this unearned revenue or deferred revenue to record how much you still owe the customer who's already given you money.

[00:02:15]On the day that you provide that service, you record your revenue. So, you're going to have a credit to that revenue cuz you're increasing revenue, and your debit is going to be a reduction to this unearned revenue or deferred revenue account. So, you're reducing that liability cuz you no longer owe that service to your customer.

[00:02:34]Let me know if you have any further questions, and I'll talk to you all soon.