> ## Documentation Index
> Fetch the complete documentation index at: https://docs.getlago.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Deferred Revenue

> Revenue you invoiced in advance but haven't earned yet.

The Deferred Revenue report answers: **how much have we invoiced for service we still owe?** It's the liability side of recognition. When you bill a customer up front, the money you haven't earned yet sits here until you deliver the service.

## When to use it

* Reporting your deferred revenue liability on the balance sheet.
* Understanding how much future revenue is already contracted and invoiced.
* Reconciling: recognized revenue plus deferred revenue should equal the pre-tax amount invoiced in advance.

## Who uses it

Finance teams closing the books and anyone reporting the balance sheet.

## Main fields

| Field                    | What it means                                                        | How to use it                                                                                   |
| ------------------------ | -------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- |
| Deferred revenue balance | Invoiced-in-advance amount not yet recognized, as of the period end. | Report it as a liability.                                                                       |
| Recognized this period   | How much deferred revenue was earned during the period.              | Ties to the [Recognized Revenue report](/guide/revenue-recognition/reports/recognized-revenue). |
| Remaining to recognize   | What's still deferred after this period.                             | Shows future revenue already invoiced.                                                          |
| Service period           | The window the deferred amount will be earned over.                  | Explains when the balance will release.                                                         |

## How the numbers are calculated

Only **advance-billed** charges create deferred revenue. When such an invoice is issued, the full pre-tax amount starts as deferred. Each day of the service period, Lago moves one day's worth into recognized revenue. The deferred balance is the amount not yet released. Arrears-billed charges don't appear here; they're unbilled revenue instead. See [Subscriptions](/guide/revenue-recognition/how-it-works/subscriptions).

## How to read the balance

The balance shrinks over the service period and reaches zero on the last day. A growing deferred balance means you're invoicing more in advance than you're earning, common in a healthy annual-subscription business.

## Example

A \$1,200 annual subscription invoiced in advance on January 1, running January 1 to December 31.

| Date   | Recognized to date | Deferred revenue balance | Explanation                              |
| ------ | ------------------ | ------------------------ | ---------------------------------------- |
| Jan 31 | \$101.92           | \$1,098.08               | One month earned, eleven still deferred. |
| Jun 30 | \~\$595            | \~\$605                  | Roughly half earned at mid-year.         |
| Dec 31 | \$1,200.00         | \$0.00                   | Fully earned. Deferred drained to zero.  |

## Relationship to other reports

* It mirrors the [Recognized Revenue report](/guide/revenue-recognition/reports/recognized-revenue): what leaves deferred enters recognized.
* The [Revenue Waterfall](/guide/revenue-recognition/reports/revenue-waterfall) shows the release schedule for this balance.
* It appears as a liability in the [Statements](/guide/revenue-recognition/reports/statements).

## Limitations to keep in mind

* Deferred revenue is pre-tax.
* Only advance-billed charges create it. Arrears-billed service is unbilled revenue, not deferred.