Deferred revenue
In one sentenceAn amount the business received in advance for goods or services it has not yet provided; it is recorded as a liability and becomes revenue on performance.
Simply put
When a customer pays you today for a service you will provide during the year, the amount is not profit yet; you owe them the service, so it is a liability.
With each month in which you provide the service, part of the liability moves to revenue through an adjusting entry, until it reaches zero at the end of the contract.
Worked example
An air conditioner maintenance company received 24,000 SAR in January for a full-year maintenance contract.
Amount received in advance24,000 SAR
Monthly revenue (24,000 ÷ 12)2,000 SAR
Revenue earned after 3 months (2,000 × 3)6,000 SAR
Remaining deferred revenue (24,000 − 6,000)18,000 SAR
Don't confuse it with
Accrued revenueThe opposite: a service you provided and have not yet been paid for, so it is an asset, not a liability.