📦Level Basic - IB Technical #1

Welcome to the 1st edition of Daily Technical Questions presented by TheFinanceGrind

TODAY’S TECHNICAL INTERVIEW QUESTION

Why is deferred revenue classified as a liability while accounts receivable is an asset?

💬 How to Answer it in an interview

“Deferred revenue is a liability because the company got paid before delivering the product or service—it still owes something. Accounts receivable is an asset because the company has already delivered but hasn’t been paid yet. One is an obligation, the other is expected cash”

Common Mistakes

1. Confusing revenue with cash flow – Just because a company has cash doesn’t mean it has earned the revenue. Deferred revenue still carries an obligation.

2. Thinking deferred revenue is an expense – It’s a liability, not a cost. The company still owes the service/product.

TL;DR (For Those Who Can’t Be Bothered to Read)

1. Deferred revenue = liability - Got paid before delivering. Still owe the service/product.

2. Accounts receivable = asset - Delivered the service/product but haven’t been paid yet.

3. One is an obligation (liability), the other is money incoming (asset).

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