Although it’s recorded as a liability on the balance sheet, deferred revenue is a good liability to have—it represents cash the company has received before some services have been performed. It’s common for software companies to get paid for consulting and maintenance work up front, so tracking deferred revenue can give you a good estimate of the potential trend in future revenues. Rising deferred revenue indicates a healthy backlog of business, whereas declining deferred revenue may suggest business has started to slow because fewer sales will be recognized in the future.
