Deferred Income

Definition. Deferred income is money a business has received for goods or services it has not yet delivered. It is held on the balance sheet until the work is done and then moved to revenue. It is also called unearned income or income received in advance.

Where it sits in the accounts. Deferred income is a liability, because the business still owes the customer the goods or service. In UK accounts it usually sits within “Accruals and deferred income” under creditors due within one year.

Worked UK example

A SaaS company with a 31 March year end bills a customer £12,000 on 1 January for a 12-month subscription.

• 1 January, cash received in advance: Debit Bank £12,000, Credit Deferred income £12,000
• End of each month, one month earned: Debit Deferred income £1,000, Credit Revenue £1,000

At 31 March, £3,000 has been recognised as revenue and £9,000 remains as deferred income on the balance sheet.

FAQs

Is deferred income a liability?

Yes. The business owes the customer a service or a refund until it delivers.

What is the difference between deferred income and accrued income?

Deferred income is cash received before you earn it (a liability). Accrued income is income earned but not yet invoiced (an asset).

How is deferred income different from a prepayment?

A prepayment is the mirror image: you pay a supplier in advance, so it is an asset on your balance sheet.

Related terms: Prepayment · Revenue · Accruals basis · Liabilities