Meaning of Deferred Income:
Deferred income refers to the money received by a company for goods or services that it has not yet provided to the customer. In other words, it is a liability on the company’s balance sheet representing the obligation to provide goods or services in the future. It is also known as unearned revenue or prepaid income.
From a financial perspective, deferred income can be beneficial for companies as it provides them with cash flow in advance. However, it also creates a liability, which means the company has an obligation to provide goods or services in the future. The company must, therefore, carefully manage its deferred income and ensure it has the resources to deliver on its obligations to customers.
Definition:
Deferred income, also known as unearned revenue or prepaid income, refers to the payment received by a company for goods or services that it has not yet provided to the customer.
It is a liability on the company’s balance sheet, representing the obligation to deliver goods or services in the future.
The company will recognize the revenue when the goods or services are provided to the customer
Examples :
- Subscriptions or memberships paid in advance
- Prepaid Rent
- Deposits received from a customer
