Deferred Revenue is a current liability account used in financial reporting. Deferred Revenue appears on the balance sheet and is calculated as follows:
The sum of (the total of Invoices for all Contract Elements for a single Contract minus the total of Recognizable Revenue for all Contract Elements for a single Contract). Note if the calculation for a contract produces a negative number, the value is included in Unbilled AR, a balance sheet current asset.
Also sometimes referred to simply as backlog, revenue backlog is the balance of unrecognized revenue that occurs when you recognize revenue for term subscriptions over the term of the subscription.
Generally speaking, both numbers would be calculated using the same revenue schedules and are drawn down using those schedules. However:
Example Subscription #1
A one-year 12,000 subscription has an order date of April 1, 2013, a subscription start date and revenue start date of April 15, 2013, and a subscription end date and revenue end date of April 14, 2014. The subscription is invoiced all on the subscription start date of April 15, 2013.
In the image below, there is an invoicing schedule with one record, and a revenue recognition schedule with a record for each month of revenue recognition over the term.
In use in this example is the GAAP friendly daily amortization schedule. The second column, Period Revenue, is the revenue for the month. The third column, Recognized Revenue as of End Period, is the rolling total of revenue as the months progress. The fourth column is the Deferred Revenue Balance as of the End of the Period.
In this example, the Backlog would be 12,000 reportable as backlog from the order date of April 1 through April 15. Since there is no invoice prior to April 15, there is not deferred revenue to report between April 1 and April 15.
On April 15, when the entire 12,000 is invoiced, and thereafter, the Revenue Backlog equals the "Deferred Revenue Balance as of the End of the Period," column 4 in the Revenue Schedule. Again, this is because the total of 12,000 was invoiced on April 15.
If the 12,000 were invoiced on April 1, the Deferred Revenue would be reportable as of April 1 as 12,000, and remains 12,000 through April 15 when the revenue schedule begins. So, in the case where the Order Date equals the Invoice Date and there is a single invoice for the subscription, the Revenue Backlog and Deferred Revenue are identical at all times.
Example Subscription #2
The value and dates of the subscription are identical. A one-year 12,000 subscription has an order date of April 1, 2013, a subscription start date and revenue start date of April 15, 2013, and a subscription end date and revenue end date of April 14, 2014.
However, this subscription is invoiced quarterly starting on April 15, 2013In the Revenue Schedule table, the values in columns 1, 2, and 3 are identical to that in Example 1 above. It is only the 4th column, Deferred Balance as of the End Period that is different.
In example 2, the Revenue Backlog is the same as it is in example 1 on any given day because Revenue Backlog is not affected by invoices. Below, we have added a Revenue Backlog as a 5th column. Here, you can clearly see the significant difference between Deferred Revenue and Revenue Backlog.
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