What is the Difference Between Deferred Revenue and Recognized Revenue?
🆚 Go to Comparative Table 🆚The difference between deferred revenue and recognized revenue lies in the timing of revenue recognition and the accounting principles governing their classification.
Deferred Revenue:
- Deferred revenue refers to advance payments a company receives for products or services that are yet to be delivered or performed.
- It is also known as unearned revenue.
- Deferred revenue is recorded as a liability on the balance sheet, as the company has an obligation to deliver goods or services in exchange for the payment received.
- As the goods or services are delivered over time, deferred revenue is recognized proportionally as revenue on the income statement.
- Examples of deferred revenue include rent payments received in advance, prepayment for newspaper subscriptions, annual prepayment for software usage, and prepaid insurance.
Recognized Revenue:
- Recognized revenue refers to the point at which a booking or deferred revenue becomes actual revenue for a business after delivering on the agreement.
- Revenue is recognized when a transaction is complete, and performance obligations are fulfilled.
- Recognized revenue is recorded on the income statement, as the company has earned the income by delivering the goods or services.
- Recognized revenue represents income generated from completed transactions.
In summary, deferred revenue is money received in advance for products or services that are yet to be delivered or performed, and it is recorded as a liability on the balance sheet. On the other hand, recognized revenue is income generated from completed transactions, and it is recorded on the income statement once the performance obligations are met.
Comparative Table: Deferred Revenue vs Recognized Revenue
The difference between deferred revenue and recognized revenue can be summarized as follows:
| Deferred Revenue | Recognized Revenue |
|---|---|
| Deferred revenue refers to advance payments a company receives for products or services that are to be delivered or performed in the future. | Recognized revenue refers to the revenue that has been earned and can be reported on the income statement. |
| Deferred revenue is a liability on a company's balance sheet, as it represents a prepayment by the customer for products or services that have not yet been delivered. | Recognized revenue is the revenue that has been earned and can be reported on the income statement. |
| As the product or service is delivered over time, deferred revenue is recognized proportionally as revenue on the income statement. | Recognized revenue is the revenue that has been earned and can be reported on the income statement. |
In summary, deferred revenue represents advance payments received for products or services that have not yet been delivered, while recognized revenue refers to the revenue that has been earned and can be reported on the income statement.
- Realized vs Recognized Income
- Earnings vs Revenue
- Accrual vs Deferral
- Sales vs Revenue
- Realization vs Recognition
- Income vs Revenue
- Profit vs Revenue
- Accounts Payable vs Accounts Receivable
- Accounts Receivable vs Notes Receivable
- Capital Reserves vs Revenue Reserves
- Revenue vs Turnover
- Fiscal Deficit vs Revenue Deficit
- Credit Sales vs Accounts Receivable
- Reward vs Recognition
- Receipt vs Invoice
- Cash Accounting vs Accrual Accounting
- Accruals vs Prepayments
- Capital Budget vs Revenue Budget
- Capital Expenditure vs Revenue Expenditure