In the nineties, when the business just came to our lands, the calculation of its performance indicators was quite simple - if the money is received, then everything is fine, and you can walk, but if there is no money, then there’s nothing to talk about. In fact, the concept of profit did not exist, and only the money that the founders had on hand mattered. In principle, at that time such an approach made sense, because the entrepreneur had no idea how long his business would last, and how much time he himself could live.
However, fortunately, times are changing, and today we can talk about a certain stability in our economy and calculate profits, as they do in the West, on the basis of the fact that the company exists almost forever. This means that the profit must be determined for each separate period, depending on how much it was actually earned for this period, regardless of when the money will be credited to the company's account. Since the company is not going to close, the movement of money is of secondary importance, while the objective reflection of profit in accounting allows you to make important management decisions.
Deferred income just refers to the situation when the receipt of money in the account and the actual receipt of income differ. In this case, we can say that the money was received earlier than the company made the necessary efforts in order to earn it. As you already understood, it is necessary to keep records of the organization’s income upon the fact that it has performed economic activities (production of goods, their shipment, actual provision of services to the client, etc.). However, how to determine the exact period by which the income will be attributed correctly?
Everything is pretty simple. In the case of goods, it is believed that the company made money when these goods became the property of the buyer. In the case of services, when the service was provided, for example, the client was sheared. The movement of money is connected with the concept of liquidity of a business, but not with its profit.
The fact that the money that the buyer owes for the goods or services to the seller is called receivables, you probably know. However, what to do when the buyer makes an advance payment and only then receives the goods or uses the services of the company? It is here that the help of future periods comes to our aid. Prepayment is a common thing to pay for the Internet, rent, etc. Here the client paid a fee for two years, but he had not yet exercised his right to live in an apartment. This means that it is impossible to record income, but payables, too, since in reality the company does not owe anything to the client. Therefore, deferred income is used that reflects the fact that income will be received, but after some time.
Accounting for deferred income is used in some other cases, other than the receipt of prepayment by the company. First of all, it is receiving gifts, gratuitous help and other similar, not expected companies incomes. It would be wrong to write down all income for one reporting period , so the accountant posts it in different periods, and the amount that will be recorded in profit in the future remains on the “deferred income” account.
In the future, in the process of earning a company real income, by, for example, providing rental services, the accountant increases the profit of the enterprise by writing off deferred income.
As you can see, the general sense of accounting for future income is not complicated. Problems, however, may arise in determining the exact amount that should be left on this account, and in determining at what point it is directly necessary to write off it. This skill distinguishes a professional accountant, who is always guided by the interests of the company in his choice.