Deferred Revenue represents the portion of billing that has been collected or invoiced but not yet recognized as earned revenue, as the corresponding subscription period has not yet been delivered.
TrueRev recognizes the full invoice amount as deferred revenue once an invoice is sent for a subscription not yet provided. The invoice date is key here; TrueRev uses it as the basis for determining the deferred revenue balance. This means any scheduled invoices in TrueRev will only be counted as deferred revenue once they're marked as "Sent."
As the subscription service is delivered over time (e.g., month by month), your company gradually earns and recognizes a portion of this revenue. This process continues until the entire amount is recognized, and the deferred revenue balance for that contract is fully amortized.
Watch how Deferred Revenue works here:
Let's look at how Deferred Revenue works with these examples:
Scenario 1: Annual Subscription Paid All At Once
When you sell a customer a 1-year subscription for $12,000 on January 1, with immediate service start and an upfront invoice for the full amount.
On January 31, your deferred revenue balance is $11,000, reflecting that the revenue for the initial month of January amounting to $1,000 has already been recognized.
By February 28, after recognizing $1,000 in earned revenue for February’s service, the deferred revenue balance decreases to $10,000.
Scenario 2: Annual Subscription Billed Quarterly
Now, consider selling a customer a 1-year subscription for $12,000 on January 1, where the service starts immediately but you bill quarterly. You invoice them $3,000 for the first quarter upfront.
On January 31, your deferred revenue is $2,000, representing the unearned portion of the first quarter's invoice.
By February 28, after recognizing $1,000 of earned revenue for January's service, your deferred revenue decreases to $1,000.
On March 31, the deferred revenue balance is zero, as the quarterly invoice has been fully amortized.
On April 30, when the invoice for the second quarter is issued, deferred revenue increases by $2,000, representing the unearned portion of the invoiced amount for that quarter.