Ace Your 2026 William Blair & Company Interview – Prep Like a Pro and Stand Out!

When cash is collected before you’ve delivered goods or performed the service, you haven’t earned the revenue yet. In accrual accounting, revenue is recognized when earned, not when cash is received. That creates an obligation to the customer, so the amount is recorded as a liability on the balance sheet called deferred revenue (or unearned revenue). The typical entry is to increase cash (an asset) and increase deferred revenue (a liability). As you fulfill the obligation, you move that amount from deferred revenue to actual revenue.

This is why the initial classification is deferred revenue on the liabilities side. It’s not revenue on the income statement because revenue is not yet earned, and it’s not accounts receivable because AR represents amounts owed for revenue that has already been earned but not yet collected.