Which scenario could cause the creation of deferred revenue?

• A. Gift card revenue collected but not yet redeemed
• B. Revenue from extended warranties recognized
• C. Cash paid for a supplier’s invoice
• D. Interest income accrued but not received

Answer: (A)

Deferred revenue is a liability that shows up when cash is collected before the company has earned the revenue by delivering goods or services. A gift card sale exactly creates this situation: the business takes cash up front, but the card hasn’t been redeemed yet, so revenue isn’t earned and a deferred revenue liability is recorded. When the card is finally used, the liability is reduced and revenue is recognized.

The other scenarios don’t create this liability in the same way. If revenue from extended warranties is recognized at the time of sale, you’re not deferring revenue for later; paying cash to a supplier is just a cash outflow and doesn’t involve revenue recognition; and accruing interest income that isn’t yet received is an asset (interest receivable) rather than a deferred revenue liability.