Deferred Revenue

Deferred revenue is cash you've collected but haven't yet earned, recorded as a liability on your balance sheet until you deliver the service. When a customer pays $1,200 upfront for an annual plan, you can't book all $1,200 as revenue on day one — under accrual accounting (ASC 606), you recognize $100 each month as you provide the service, moving it from deferred revenue to recognized revenue. Why it matters: this is the gap between your bank balance and your real earnings, and it's why a profitable-looking SaaS can still be cash-tight, or a cash-rich one unprofitable. Annual prepayments boost cash flow today but create a deferred-revenue obligation you must honor. Practical note: investors read your deferred-revenue balance as a signal of committed future revenue and billing momentum — a growing balance is healthy. Don't spend prepaid annual cash as if it were profit; you still owe eleven more months of service, and refunds come out of it.