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How does a company account for cash payments received in advance of delivering its goods or services? Under the "accrual-basis accounting" rules used by most companies, advance payments can't be counted as revenue because the company hasn't "earned" the money yet by delivering the goods or services.

But the cash has to be accounted for somewhere in the company's financial statements. Until it's earned, that cash is known as deferred revenue.

It's accounted for on both the company's balance sheet and its cash flow statement -- but the entry on the cash flow statement might not be obvious.

How deferred revenue is calculated Imagine that it's Oct. The gym's fiscal year ends on Dec. It's an asset, because it's cash. But in a sense, it's also a liability, because the gym owes you nine months of services in order to earn that cash.

We refer to it as deferred revenue -- cash that the business has not yet earned but is committed to earning as revenue in the future. How deferred revenue is reported on the cash flow statement The cash flow statement tracks the cash coming into and going out of the company over the period.

But that cash might not necessarily show up as "deferred revenue" on the cash flow statement. Some accountants will make a specific entry for "cash received as deferred revenue" or something similar.

But many will just roll that payment into a catch-all for cash received from operating activities, perhaps with a title like "Other cash from operations.

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