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Deferred revenue: bridge billings to recognized revenue (with formulas)

A practical guide to deferred revenue: what it is, why billings and recognized revenue differ, and how to use a rollforward to stay consistent.

Updated 2026-01-28

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Deferred Revenue Rollforward Calculator
Rollforward example (begin $250k; billings $400k; recognized $350k)

Why this topic matters

Teams often mix bookings, billings, cash, and recognized revenue. Deferred revenue is the bridge that explains timing: it increases when you bill/collect ahead of delivery and decreases as you recognize revenue over time.

Key definitions (quick)

  • Billings: invoices issued in a period.
  • Recognized revenue: revenue recorded as earned/delivered.
  • Deferred revenue: unearned revenue liability (what you billed/collected but haven't earned yet).

Deferred revenue rollforward formula

Ending deferred = beginning deferred + billings - recognized revenue.

How this relates to bookings vs ARR

  • Bookings are contracted value; they are not automatically billings or revenue.
  • ARR is a recurring run-rate snapshot; it is not recognized revenue.
  • Deferred revenue helps explain why billings/cash can spike (annual prepay) while ARR and recognized revenue move differently.

Common mistakes

  • Treating billings as cash receipts (collections timing matters).
  • Using bookings/TCV as billings without checking invoicing timing.
  • Ignoring negative deferred revenue outputs (usually indicates definition mismatch).

FAQ

Can deferred revenue go down even if you are growing-
Yes. If you shift from annual prepay to monthly billing, or if recognized revenue outpaces new billings for a period, deferred revenue can decline while the business still grows.
Is deferred revenue the same as cash collected-
No. Deferred revenue is a liability balance. Cash collected is cash. They can move together under prepay, but they differ when collections timing, write-offs, or payment terms differ.

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