Deferred Revenue is revenue that has been billed but not yet recognized as earned because the service or product has not been delivered. It is considered a liability on a company’s balance sheet because it represents an obligation to provide goods or services in the future.

Deferred Revenue is calculated by summing all amounts billed for services or products that have not yet been delivered or fulfilled.

\[\text{Deferred Revenue} = \text{Total Billed Amounts for Undelivered Services/Products}\]

1. Subscription Example: A customer pays $1,200 upfront for a 12-month subscription. Each month, $100 is recognized as revenue, while the remaining $1,100 is deferred revenue initially, reducing by $100 each month.

2. Service Contract Example: A company bills $5,000 for a service contract to be delivered over six months. Until services are performed, the full $5,000 is deferred revenue.