What is Deferred Revenue?
Deferred revenue, also known as unearned revenue, is cash received from a customer before the related goods or services have been delivered. It is recorded as a liability on the balance sheet and recognised as revenue in the income statement only when the performance obligation under IFRS 15 is satisfied.
How It Works
- Receive cash from the customer for a future delivery.
- Debit cash and credit deferred revenue (liability) for the amount received.
- Recognise revenue over time or at a point in time, as appropriate, by debiting deferred revenue and crediting revenue.
- Disclose the deferred revenue balance and a roll-forward in the notes.
Saudi Context
Saudi SaaS providers, training centres, gym chains, and any business selling annual subscriptions hold deferred revenue under IFRS 15. ZATCA’s VAT regime usually requires VAT on the full prepayment up front, even though revenue is recognised over the service period.
Example
A Saudi SaaS company collects SAR 120,000 for a 12-month subscription on 1 January. It records SAR 120,000 deferred revenue and recognises SAR 10,000 revenue per month over the year as the service is delivered.