A decrease in deferred revenue affects which financial statement line item?

When deferred revenue decreases, it indicates that the company has recognized revenue that was previously recorded as a liability. Deferred revenue occurs when a company receives payment in advance for goods or services that it has yet to deliver. As the company fulfills its obligations and delivers the goods or services, the deferred revenue is recognized as earned revenue, leading to an increase in the revenue reported on the income statement.

This is why the correct answer highlights the impact on revenue reported on the income statement. It reflects the transition of funds from liabilities to earned revenue, which contributes positively to the financial performance reported for the period.

The decrease in deferred revenue does not directly affect cash flows from investing activities, nor does it result in an increase in cash or total liabilities. While total liabilities decrease due to the recognition of revenue, the aspect of the question that focuses on financial statement reporting specifically pertains to the revenue recognized on the income statement, making that the correct and pertinent choice.