What is a "deferred revenue" liability?

A deferred revenue liability arises when a company receives payment from a customer for goods or services that have not yet been delivered or performed. This means the company has an obligation to provide the service or deliver the product in the future, creating a liability on the balance sheet. Until the service is rendered or the product is delivered, the received cash cannot be recognized as revenue, as it does not yet satisfy the revenue recognition principle.

When the company eventually delivers the service or product, the deferred revenue will then be recognized as earned revenue on the income statement, reflecting the completion of the obligation. This accounting treatment ensures that financial statements accurately reflect a company's financial position and performance over time.