Deferred income refers to income invoiced or paid for in advance of providing the service, resulting in the income being recognised in a later accounting period. It ensures revenue matches the period in which the service is provided, following the accrual accounting principle.

Example: A marketing agency receives £30,000 in advance for a one-year contract. The agency records this as deferred income and gradually recognises revenue each month over the contract's duration. This ensures the agency’s financial statements accurately reflect the revenue earned over the year.

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