deferred revenue
Also called: unearned revenue, contract liability
Money received for lessons or service not yet delivered. It sits on the balance sheet as a liability and turns into revenue as the company delivers.
Deferred revenue (also unearned revenue or a contract liability) is money a company has received for something it hasn't delivered yet: prepaid lessons, the remaining months of an annual plan, a gift card. It sits on the balance sheet as a liability, because the company owes the customer either the service or the money back. As the company delivers, the liability shrinks and revenue appears.
For prepaid businesses it is one of the most important numbers on the balance sheet. While prepaid sales grow, deferred revenue grows and the cash flow statement adds the increase to operating cash: customers are funding the company. When sales slow, as in a seasonal dip, it unwinds and cash goes the other way: the company keeps delivering lessons it was paid for months ago.
Two details matter. On a marketplace that acts as an agent, the company may track the full price it owes customers, though only its commission will ever become its revenue; the rest will go to providers. And a large deferred revenue balance is not spare money. It is service still to be delivered, with costs still to be paid.
Example
In March 2026 Klasna sold 530 lesson packages for 6,279,600 UAH, valid until the end of September. What it still owed in lessons at the end of each month, at the package price per lesson:
Of the 6,279,600, Klasna's own revenue over seven months was 2,408,600: 2,130,900 of commission on the lessons used plus 277,700 for the 440 lessons that expired unused. The rest went to tutors. Club annual plans add their own balance: 100 plans sold in the autumn at 4,320 left 343,800 of service still owed on 30 November.
Common mistakes
- Treating it as free cash. It is owed in service, and delivering it still costs payouts and hosting.
- Reading a record cash month as a record revenue month. The difference sits in deferred revenue.
- Forgetting the seasonal unwind. A balance built in spring is spent in summer; plan the cash for it.
- Assuming all of it becomes your revenue. On an agent marketplace only the commission does.
Learn it in the course
- Deferred revenue: when prepaid lessons are earned · A deferred revenue example: prepaid money is a liability until the lesson happens, then recognition as lessons are delivered or a subscription runs, and what to do with lessons nobody takes.
- Working capital: who pays whom first · Prepayments, payouts and invoices: the cash conversion cycle, working capital on one date, when negative working capital funds growth and why other lines eat cash.
- The cash flow statement and the three financial statements · How the three financial statements link, with a cash flow statement example: operating, investing and financing cash, built from profit with the indirect method.
- Case: a board report for a new board member · A board report on the quarter: rebuild Klasna's autumn P&L from raw lines, separate what will repeat from what won't, and back the memo with numbers.
- Profit is not cash: net income vs cash flow · Net income vs cash flow, month by month: how accruals, prepayments, invoices and equipment make the P&L and the bank disagree, and how to get from one to the other.