The Complete Guide to Prepayment Amortization for Finance Teams
Learn how to correctly record, track, and amortize prepaid expenses so your balance sheet is always accurate — without Excel.
Read
Accounting Fundamentals5 min read29 March 2026
Deferred Revenue vs Accrued Revenue: What Is the Difference?
Two sides of the same timing mismatch — but they sit on opposite sides of the balance sheet. Here is how each works and when they arise.
Deferred revenue and accrued revenue are both consequences of accrual accounting, but they represent opposite timing mismatches between cash and earnings. Confusing the two leads to balance sheet misclassifications and incorrect revenue recognition.
Deferred Revenue: Cash Received Before Earning It
Deferred revenue (also called unearned revenue) arises when a customer pays you in advance for goods or services not yet delivered. Because you have not yet earned the revenue, it sits as a liability on your balance sheet until the performance obligation is fulfilled.
- Annual software subscriptions billed upfront at the start of the year
- Retainers paid before any work is performed
- Gift cards sold but not yet redeemed
- Deposits received before delivery of goods
Entry when cash is received: Dr Bank / Dr Accounts Receivable, Cr Deferred Revenue. Entry when earned each month: Dr Deferred Revenue, Cr Revenue.
Accrued Revenue: Earned Before Receiving Cash
Accrued revenue arises when you have earned revenue but have not yet invoiced or received payment. It sits as an asset — often called "accrued income" or "unbilled receivables" — until the invoice is raised.
- Consulting work completed in March but invoiced in April
- Milestone-based contracts where work is ahead of the billing schedule
- Interest income earned but not yet received
Balance Sheet Placement
Deferred revenue is a current liability (or long-term if the obligation extends beyond twelve months). Accrued revenue is a current asset. Both should be reviewed and reconciled at each period end to ensure the balances reflect only open, valid items.
Common Mistakes
- Recognising deferred revenue as earned too early — overstates revenue
- Forgetting to raise accrued revenue for work completed near period end — understates revenue
- Leaving stale deferred revenue balances on the balance sheet after obligations are fulfilled
- Netting deferred and accrued revenue instead of showing them separately
Further Reading
Ready to automate your prepayment and accrual tracking?
CloseKit replaces your spreadsheets with instant balance sheet reconciliations. Start a free trial — no credit card required.
More articles
Accrued Expenses vs Prepaid Expenses: Key Differences Explained
Confused about when to accrue a cost vs when to prepay it? This guide explains the difference with clear examples and accounting treatment for each.
Read
How to Track Accrued Liabilities Without a Spreadsheet
Accrued liabilities are easy to forget and hard to reconcile in Excel. Here is a better way to record, track, and reverse them every month.
Read
Journal Entries for Prepayments and Accruals: Worked Examples
Step-by-step debit and credit examples for the most common prepayment and accrual scenarios finance teams encounter every month.
Read