What is the difference between accounts receivable and deferred revenue?

• A. Accounts receivable has not yet been collected in cash from customers, whereas deferred revenue has been.
• B. Accounts receivable is recorded as a liability, and deferred revenue is recorded as an asset.
• C. Both are assets; accounts receivable is cash-based while deferred revenue is revenue-based.
• D. Accounts receivable represents revenue recognized; deferred revenue is revenue not yet earned.

Answer: (A)

The difference hinges on when cash changes hands and when the company has earned the revenue. Accounts receivable is an asset because it represents money customers owe you for goods or services already provided and for which revenue has been recognized, but the cash hasn’t been collected yet. Deferred revenue is a liability because you’ve already received cash in advance, but you haven’t yet earned that revenue by delivering the goods or services.

So, the statement that best captures this is that accounts receivable has not yet been collected in cash from customers, whereas deferred revenue has been. For example, selling on credit creates accounts receivable until the customer pays; collecting cash up front creates deferred revenue that is later recognized as revenue as you fulfill the obligation.

The other descriptions mix up these classifications or the timing. One mislabels accounts receivable as a liability and deferred revenue as an asset. Another treats both as assets, ignoring that deferred revenue is a liability. And another implies accounts receivable is revenue itself, which it is not—the asset represents amounts due, while revenue is the income recognized when earned.