Deferred income

Accounting - Financial reporting.

Income for which payment has been received by the business but which has not yet been earned.

Example: Five year licence

A customer pays in advance for a five year licence.

We would record the revenue in our income statement spread over the full five years.

At the end of the first year 4/5 of the total received from the customer would be Deferred income.

We have a liability / obligation to provide the further four years of service, for which we have been paid in advance.

Deferred income is recorded as a credit balance in the balance sheet.

(The related accounting entries being DEBIT Cash and CREDIT Deferred income.)

Deferred income is a liability of the reporting entity to provide the services that the customer has already paid for.

For reporting presentation purposes it is often aggregated with Accruals as 'Accruals and deferred income'.

See also

• Accrual
• Accruals accounting
• Accrued income
• Balance sheet
• Credit
• Debit
• Financial reporting
• Liabilities
• Prepayment
• Reporting entity
• Revenue