A revenue is when you’ve sold something and you make an out an invoice to your client. Either you have contractual rights to make the invoice or the client is in your store, just bought something and you have every right to make the invoice.

However, what happens when you cannot just yet make out the invoice – either you are not yet allowed by the contract or you don’t know who to make the invoice out to or some such. What happens then?

In a case where you’ve made expenses, you plan to sell something to the other party and you cannot just yet make out the invoice, you account for deferred revenues showing that you have earned them, but in your accounting they are not yet accounts receivables.

Essentially in your accounting the entry is as follows: 

Db Deferred revenue (on assets side)

Cr Revenue (may be on a different account under revenue)

The conditions for showing deferred revenue in a nutshell as simple – you can measure the revenue and you’re fairly certain you will actually be able to invoice the amount to the customer (i.e. the customer will also pay the balance and is aware that you’re expecting something at some point).

The reasons for showing deferred revenue should also be obvious – to make sure your revenues and expenses are shown in the same period. If you’re making expenses for something you will receive money at some point, do make sure you account for relating revenues at the same time. If not, then it begs to ask why you’re making those expenses in the first place.