Deferred Revenue

Deferred revenue is cash a company has collected but hasn't yet earned, sitting on the balance sheet as a liability because service is still owed. It's counterintuitive: the company has the money, but accounting rules treat it as something owed to the customer until service is delivered, which is why deferred revenue appears in the liabilities section of the balance sheet rather than as cash equity.

The mechanics:

A customer signs a 12-month SaaS contract on January 1 for $120K and pays the full $120K upfront. On January 1:

• Cash on balance sheet: +$120K (asset).
• Deferred revenue on balance sheet: +$120K (liability).
• Revenue on income statement: $0 (none yet earned).

Each month thereafter, $10K of deferred revenue converts...