Deferred income and Working capital: Difference between pages

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''Financial reporting - balance sheet - liabilities''.  
Working capital is normally defined as the excess of current assets over current liabilities.


Income for which payment has been received by the business, but which has not yet been earned.
It represents the day to day capital requirement to continue the operations of the organisation.


 
This working capital requirement has to be financed by borrowings, shareholders' funds, or a combination of both of them.
<span style="color:#4B0082">'''''Example: Five-year licence'''''</span>
 
Our accounting year runs from 1 January to 31 December.
 
One of our customers has paid us in advance, at the start of January for a five-year licence.
 
We recognise 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 is Deferred income.
 
We have a liability / obligation to provide a further four years of service, for which we have already been paid in advance.
 
 
Deferred income is recorded as a credit balance in the balance sheet. 
 
(The related accounting entries for the initial receipt 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 ==
== See also ==
* [[Accrual]]
* [[Capital]]
* [[Accruals accounting]]
* [[Cash flow statement]]
* [[Accrued expense]]
* [[Efficiency ratio]]
* [[Accrued income]]
* [[Liquidity management]]
* [[Balance sheet]]
* [[Over trading]]
* [[Credit]]
* [[Working capital management]]
* [[Debit]]
* [[Financial reporting]]
* [[Income statement]]
* [[Liabilities]]
* [[Prepayment]]
* [[Reporting entity]]
* [[Revenue]]
 
[[Category:Accounting,_tax_and_regulation]]

Revision as of 16:47, 20 June 2015

Working capital is normally defined as the excess of current assets over current liabilities.

It represents the day to day capital requirement to continue the operations of the organisation.

This working capital requirement has to be financed by borrowings, shareholders' funds, or a combination of both of them.


See also

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