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Accounting standards for deferred revenue
How ASC 606 and US GAAP treat deferred revenue as a contract liability, how that compares with IFRS 15, and how to calculate it for SaaS contracts.
What is deferred revenue or deferred income?
Deferred revenue is a term used in accounting to describe the amount a company has received from a customer, or invoiced with payment already due, but has not yet earned through the provision of goods or services. In other words, deferred revenue represents a liability for the company.
Deferred revenue and deferred income are synonymous and used interchangeably. We go into more detail onwhat deferred revenue is in this post.
What are the accounting standards?
There are several accounting standards that specify how deferred revenue should be accounted for, including:
- International Financial Reporting Standards (IFRS 15)
- Financial Reporting Standards in the UK and Ireland (FRS 102 Revenue Recognition; UK GAAP)
- Generally Accepted Accounting Principles (GAAP, in the US)
- Accounting Standards Codification (ASC 606, the revenue standard within U.S. GAAP)
- International Accounting Standards (IAS 18, since replaced by IFRS 15)
The IASB completed its post-implementation review of IFRS 15 in 2024 and made no major changes. UK GAAP has changed: amendments to FRS 102 issued in March 2024 introduce a five-step revenue model based on IFRS 15 for accounting periods beginning on or after 1 January 2026.
While these standards share some common principles, there are also some key differences between them.
What are the similarities between IFRS 15, FRS 102, ASC 606, and GAAP?
All of these accounting standards work on the principle that revenue should be recognized as it is earned, rather than when it is invoiced or when cash is received (see methods of revenue recognition). Accounting bodies have been working to increase detailed alignment between these standards as well as general principles.
For companies that provide a product or service, this can result in the revenue being shown over several months or even years. In the case of an annual contract or retainer fee, the revenue would typically be shown over the twelve-month period or as the retainer is used.
What are the differences between accounting standards?
Within this principle, there are subtle differences between the standards. Under both IFRS 15 and ASC 606 (U.S. GAAP), deferred revenue is recognized as revenue when (or as) the company satisfies its performance obligations, which means that the company has transferred the goods or services to the customer. The timing principle is the same under both. The differences sit in more detailed areas, such as collectability thresholds, licensing guidance and some disclosure requirements. For software and tech companies, these two standards usually give the same result.
In addition, ASC 606 and IFRS 15 both set detailed disclosure rules for deferred revenue. For example, both require companies to disclose the nature of their performance obligations and when they typically satisfy them, along with their contract liability balances.
Overall, while there are some common principles shared by accounting standards IFRS 15, ASC 606, FRS 102 and GAAP, there are also some differences. It is important for companies to understand and comply with the specific requirements of the accounting standards that apply to them in order to accurately account for deferred revenue.
ScaleXP provides deferred revenue software for Xero and QuickBooks that builds revenue recognition schedules and journals for every customer, invoice and invoice line item. The software provides fully automated revenue recognition – using a sophisticated series of algorithms – eliminating the need for spreadsheet tracking with its inevitable errors.
Frequently asked questions
How does ASC 606 treat deferred revenue?
Under ASC 606, deferred revenue is a contract liability: consideration a customer has paid, or that is due, before the company transfers the promised goods or services. The liability is reduced, and revenue recognized, as each performance obligation is satisfied, either at a point in time or over time. For a subscription, that usually means recognizing revenue ratably across the service period.
How do I handle deferred revenue for annual contracts?
For an annual contract billed upfront, record the full invoice as deferred revenue and recognize one-twelfth of it as revenue each month as the service is delivered. For example, a $12,000 annual subscription invoiced in January releases $1,000 of revenue per month, leaving $11,000 in deferred revenue at the end of January and nothing once the twelfth month has been delivered.
Is deferred revenue a current or long-term liability?
Deferred revenue is a liability, not an asset, and it is split between current and non-current based on when the revenue is expected to be recognized. Amounts expected to be earned within the next 12 months, or the operating cycle if longer, are current. Amounts for later periods, such as the second and third years of a prepaid multi-year contract, are presented as long-term deferred revenue.
How ScaleXP does this
ScaleXP calculates deferred revenue from your invoices and contracts and keeps the balance sheet reconciled every month. See ScaleXP’s deferred revenue automation
Recognition schedule calculatorSee how an invoice turns into cash and revenueTry itClose
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Invoiced$12,000
Cash received$12,000
Revenue recognized$3,000
Deferred revenue$9,000
Totals at the end of December 2026. Revenue is $1,000 a month. Click any month to move through the schedule.
ScaleXP prepares the schedules and journals for every customer, invoice and invoice line item, and finance reviews and approves them before they’re posted to Xero or QuickBooks.
Book a demo →Invoiced in full at the start of the service period and recognized straight-line by whole month. Illustration only, not accounting advice.