Deferred income is a liability on a company’s balance sheet that represents an advance payment by its customers for goods or services that have not yet been delivered.
Deferred income is recognized as earned income in the income statement as the good or service is delivered to the customer.
The use of the deferred income account is consistent with GAAP’s accounting conservatism principles.
If the product or service is not delivered as planned, the company can refund the money to its customer.