Deferred Revenue refers to advanced payments that an organization receives for products or services to be delivered or carried out in the future. It is also known as unearned revenue.

For example, the annual subscription amount you pay for fitness services. The organization that receives the payment for the entire year records the amount as Deferred Revenue on its balance sheet as a liability. Deferred revenue is a liability because it refers to revenue that has not been earned and represents services that are owed to a Customer. As the product or service is delivered over time, it is recognized as revenue on the income statement.

Deferred Expenses are costs that have already been incurred, but not yet consumed. Let’s take an example of Cloud Storage Subscription which an organisation takes. The subscription fee is recorded as an asset until such time as the services are consumed; at that point, the cost is charged to the expense. A Deferred Expense is initially recorded as an asset so that it appears on the balance sheet.