Question:

What is the difference between deferred revenue and accounts receivable?

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Answer:

Deferred Revenue: is a liability and refers to payments received in advance of services or goods that have not yet been delivered. It is also referred to as unearned income - i.e. the payment has been received, but not yet earned because the product or service has not yet been delivered.

An example of deferred revenue would be an annual software subscription that is payed for up front. In this case, the company would earn 1/12 of that deferred revenue each month of the subscription and the deferred revenue would turn into real revenue on the Income Statement.

Accounts Receivable: is an asset on the balance sheet and refers to the payment that the company expects to receive for goods or services they have already delivered.

An example of this is when a customer buys a good or service on credit. The product is now owned by the customer, but they have not yet paid for it.

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