What is the difference between accounts receivable and deferred revenue?

The distinction between accounts receivable and deferred revenue lies primarily in the timing of cash flows and the recognition of revenue.

Accounts receivable refers to money owed to a company by customers for goods or services that have been delivered or rendered but for which payment has not yet been received. This represents an asset on the balance sheet because it reflects a future claim for cash. In contrast, deferred revenue reflects payments that a company has received in advance for goods or services that have not yet been delivered or consumed. This represents a liability on the balance sheet because it represents an obligation to provide goods or services in the future.

Choosing the correct response emphasizes that deferred revenue implies cash has indeed been received, but the revenue has not yet been recognized because the company has not fulfilled its obligation. This warrants a fundamental understanding of how these items are recorded within the financial statements.