Which statement best describes the difference between accounts receivable and deferred revenue?

Which statement best describes the difference between accounts receivable and deferred revenue?

• 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)

The main idea is matching what each balance sheet item represents with when value is realized. Accounts receivable shows money you’ve earned but haven’t collected yet, so it’s a current asset. Deferred revenue shows money you’ve collected before you’ve earned the related goods or services, so it’s a liability because you owe that performance. When you later provide the goods or services, the liability is reduced and revenue is recognized. This makes the statement correct: 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 descriptions mix up asset vs. liability roles, or confuse revenue recognition with what each account represents.

The main idea is matching what each balance sheet item represents with when value is realized. Accounts receivable shows money you’ve earned but haven’t collected yet, so it’s a current asset. Deferred revenue shows money you’ve collected before you’ve earned the related goods or services, so it’s a liability because you owe that performance. When you later provide the goods or services, the liability is reduced and revenue is recognized.

This makes the statement correct: 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 descriptions mix up asset vs. liability roles, or confuse revenue recognition with what each account represents.