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. The concept is commonly applied to the receipt of money related to service contracts or insurance, where the related benefits may not be completed until a number of accounting periods have passed.
Deferred income is also known as deferred revenue or unearned revenue.