Glossary
Deferred revenue
Money received for goods or services not yet delivered. Recorded as a liability, not income, until the work is done.
Annual subscriptions, retainers, deposits, gift cards and prepaid packages all create deferred revenue. The cash is in the bank; the obligation is still owed. Booking it as income when it arrives makes a good month look great and borrows from every month after, and it is the first thing a diligence team or an acquirer recalculates.
The related trap: recording the liability at the price paid rather than the value the customer can claim. A $500 gift card sold for $350 is a $500 obligation.
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