Deferred income is an advance payment from a customer for goods or services that have not yet been delivered. Under the accrual basis of accounting, the recipient records this payment as a liability. Once the goods or services have been delivered, the liability is reversed and revenue is recorded instead. For example, a company provides custom-built motorcycles to its customers, and requires an advance payment before it begins work. A customer sends the company a $30,000 payment, which is deferred income for the company until it ships the completed motorcycle to the customer.
Deferred income is also known as deferred revenue or unearned revenue.