How do accounts receivable and deferred revenue differ?

Accounts receivable and deferred revenue represent two distinct aspects of a company's revenue cycle, and understanding the difference between them is crucial for financial analysis.

Accounts receivable refers to the money that a company expects to receive in the future for goods or services already delivered to customers. In this case, the revenue has been earned, but payment has not yet been collected. This represents outstanding debts that customers owe to the business.

On the other hand, deferred revenue refers to money received by a company in advance for services or goods that have yet to be delivered or performed. Since the revenue has not been earned at the time of receipt, it is recorded as a liability on the balance sheet. The revenue will be recognized as earned in the financial statements when the goods are delivered or the services are performed.

In summary, accounts receivable signifies future cash inflows for already delivered products or services, while deferred revenue represents cash that has been received but not yet recognized as revenue because the corresponding goods or services are not yet delivered.