Deferred Revenue
Deferred revenue is money invoiced (and usually collected) for service you have not yet delivered — a customer's annual prepayment sits here and is released to revenue month by month. On the balance sheet it is a liability, because you still owe the service.
Formula
Worked example
A customer pays $24,000 for a year in January. You recognise $2,000 of revenue each month; after four months, $8,000 has been earned and $16,000 remains as deferred revenue.
For subscription businesses deferred revenue is a happy liability: growth in the balance means customers are prepaying faster than you deliver, which is why growing SaaS companies can be cash-rich while showing accounting losses.
Analysts watch the change in deferred revenue as a proxy for billings momentum. A shrinking balance at a "growing" company suggests shorter prepayment terms or slowing sales — worth a question either way.