Deferred revenue vs accounts receivable is correctly described as:

Deferred revenue vs accounts receivable is correctly described as:

• A. Deferred revenue is a liability representing cash collected but not yet revenue; Accounts receivable is a current asset representing revenue earned but not yet collected.
• B. Deferred revenue is an asset; Accounts receivable is a current liability.
• C. Deferred revenue is revenue recognized; Accounts receivable is cash.
• D. Deferred revenue is a liability representing revenue earned; Accounts receivable is cash on hand.

Answer: (A)

This question tests understanding of when revenue is recognized versus when cash is received. Deferred revenue arises when you collect cash before you’ve delivered the goods or performed the service, so you owe the customer and haven’t yet earned the revenue—this is a liability on the balance sheet. Accounts receivable appears when you’ve earned revenue by delivering goods or providing a service, but you haven’t yet collected the cash from the customer; it’s an asset representing expected cash inflows. The described option correctly states that deferred revenue is a liability for cash collected but not yet revenue, and accounts receivable is a current asset for revenue earned but not yet collected. The other statements misclassify these items (for example, treating deferred revenue as an asset or revenue, or AR as cash).

This question tests understanding of when revenue is recognized versus when cash is received. Deferred revenue arises when you collect cash before you’ve delivered the goods or performed the service, so you owe the customer and haven’t yet earned the revenue—this is a liability on the balance sheet. Accounts receivable appears when you’ve earned revenue by delivering goods or providing a service, but you haven’t yet collected the cash from the customer; it’s an asset representing expected cash inflows. The described option correctly states that deferred revenue is a liability for cash collected but not yet revenue, and accounts receivable is a current asset for revenue earned but not yet collected. The other statements misclassify these items (for example, treating deferred revenue as an asset or revenue, or AR as cash).