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Revenue Recognition (ASC 606)

What Is Deferred Revenue?

Deferred revenue is a liability representing payment a company has received for goods or services it has not yet delivered. Under ASC 606 the formal balance-sheet caption is a contract liability; “deferred revenue” and “unearned revenue” are the common labels for the same item.

It is the balance-sheet consequence of ASC 606's core principle — revenue is recognized as performance obligations are satisfied, not when cash is collected. A prepaid annual subscription, for example, is recorded as a contract liability when billed and recognized, typically ratably, as the stand-ready obligation is satisfied over the subscription term.

One technical wrinkle worth knowing: when deferred revenue is acquired in a business combination, ASU 2021-08 requires the acquirer to measure the acquired contract liability under ASC 606 as if it had originated the contract — not at fair value. That change eliminated the old “deferred revenue haircut” that used to shrink post-acquisition revenue.

Frequently asked questions

Under ASC 606, yes. 'Contract liability' is the standard's term for an entity's obligation to transfer goods or services for which it has already received consideration (or the consideration is due). 'Deferred revenue' and 'unearned revenue' are widely used captions for the same balance.

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Related

References: FASB ASC 606, Revenue from Contracts with Customers; ASU 2021-08. This page is general information, not accounting advice for a specific entity.

Written and maintained by the Gaapio team of CPAs. Last reviewed August 2026.