---
title: "What is deferred revenue?"
description: "Deferred Revenue explained in plain English: definition, how it works, an example, and how it appears in QuickBooks and Xero."
url: https://ledgerbpo.com/glossary/deferred-revenue/
updated: 2026-09-11
publisher: LedgerBPO (SS Support Network LLC)
language: en-US
---

# What is deferred revenue?

Glossary

Deferred revenue is money a business has collected from a customer for a product or service it has not yet delivered. It is recorded as a liability and converted to earned revenue as the business fulfills its obligation.

Updated September 2026

## How deferred revenue works

When a customer pays in advance, for example a full year of a subscription, the business has an obligation to deliver something in the future. Because the revenue has not actually been earned yet, it is recorded as deferred revenue on the balance sheet rather than as income on the day the cash arrives. This liability shows the business still has work to do, even though the cash has already arrived in its bank account.

As the business delivers the product or service over time, a portion of the deferred revenue is recognized as earned revenue each period. This spreads income across the periods it actually relates to, which matters for subscription and membership businesses where cash collection and service delivery do not happen at the same time. Investors reviewing a subscription business often look closely at the deferred revenue balance to judge how much future revenue is already secured.

## Example

A gym sells a $600 annual membership on January 1 and records the full $600 as deferred revenue. Each month, it recognizes $50 of earned revenue as the member uses the gym. By May 31, $250 has moved to earned revenue and $350 remains as deferred revenue for the remaining seven months of the membership.

## Deferred revenue in QuickBooks Online vs Xero

QuickBooks Online tracks deferred revenue through a liability account, released manually or with a recurring journal entry each period. Xero can handle simple deferrals the same way, though many subscription businesses use a separate billing tool alongside either platform to automate the recognition schedule for larger volumes of contracts. Recognizing revenue too early or too late can significantly change how profitable the business appears in a given month.

## Related terms

- [Unearned revenue](https://ledgerbpo.com/glossary/unearned-revenue/)
- [Deferral](https://ledgerbpo.com/glossary/deferral/)
- [Subscription billing](https://ledgerbpo.com/glossary/subscription-billing/)
- [All terms](https://ledgerbpo.com/glossary/)

## How LedgerBPO handles deferred revenue

We set up deferred revenue accounts and recognize income on the correct schedule each month, matching what you have actually delivered to your customers. A dedicated accountant reconciles the deferred revenue balance against active contracts during close. You get revenue figures that reflect real delivery, not just cash collected. We reconcile the deferred revenue balance against your actual customer contracts so the recognized revenue is always accurate.

[Close the books in days, not weeks](https://ledgerbpo.com/services/month-end-close/)

Next step

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Source: https://ledgerbpo.com/glossary/deferred-revenue/ · Contact: https://ledgerbpo.com/contact/ · Full site map for agents: https://ledgerbpo.com/llms.txt