What is deferred income? Definition & examples
A plain‑English definition of deferred income (deferred revenue), why it's a liability, and how it's recognised over time.
This walkthrough explains what deferred income is, why invoiced amounts must sit as a liability until earned, and how to recognise revenue correctly across a service period. It helps UK business owners, accountants and bookkeepers using Xero avoid overstating income and manage deferred balances accurately.
Deferred income — also called deferred revenue — is money you've invoiced or received for goods or services you haven't delivered yet. Until you earn it, it's a liability: you owe the customer the work.
In one sentence
You've been paid, but you haven't earned it yet — so it isn't revenue yet.
Everyday examples
- Annual subscriptions billed up front
- Retainers and support contracts covering future months
- Deposits and advance payments
Why it's a liability
If a customer paid for 12 months and you've delivered 3, you still owe 9 months of service. That obligation sits on the balance sheet and is released into revenue as you deliver.
How it's recognised
Post the invoice to a deferred income liability, then recognise revenue as the benefit is delivered — usually evenly across the contract. Worked journals: how to record deferred revenue in Xero.
The automated approach
WorkWithLottie builds the recognition schedule from Xero and releases revenue month by month, keeping the deferred balance reconciled.
Related: Deferred income & revenue recognition explained
Frequently asked questions
Is deferred income a liability?
Yes. Deferred income is money received for goods or services not yet delivered, so it's a liability until you've earned it by delivering the work.
What's the difference between deferred income and accrued income?
Deferred income is invoiced or received before delivery (a liability). Accrued income is earned before it's invoiced (an asset). They're opposites.
How is deferred revenue recognised?
It's released from the liability into revenue as the customer receives the benefit — usually evenly over the contract, or on delivery of milestones.
More on Deferred income
All guidesHow to record deferred revenue in Xero (with journal examples)
Invoiced up front but haven't delivered yet? Here's how to record deferred revenue in Xero and recognise it correctly, month by month.
ReadDeferred income & revenue recognition explained
What deferred income is, why it sits on the balance sheet, and how to recognise revenue correctly — with a simple example.
ReadAccrued income vs deferred income: what's the difference?
Accrued income and deferred income are opposites — one is an asset, one a liability. Here's how to tell them apart, with examples.
ReadLet Lottie handle this for you
Automate accruals, prepayments and deferred income on top of Xero. Start your free 7-day trial.
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