Glossary · Also called Deferred income
Income received in advance
Money received before the business has earned it, relating to a future period.
What it means
Income received before the reporting date that relates to a later period, deducted from income and shown as a current liability.
Example
Rent of RM600 received for next year is removed from this year's income and shown as owing.
Why it matters
It applies the matching concept, keeping next year's income out of this year's profit.
In practice
Income received in advance is money the business has collected before it has earned it. It is deducted from the income figure in the income statement. It is shown as a current liability in the statement of financial position, because the firm still owes the customer the service.
For example, a landlord receives RM600 of rent that covers two months in the next financial year. That RM600 is taken out of this year's rent received and carried forward as a liability. This follows the accruals concept, so income is matched to the period it belongs to, not the period the cash was banked.
It is the opposite of accrued income. Income received in advance is a liability, because the earning has not yet happened. Accrued income is an asset, because the earning has happened but the cash has not. It is also the same idea as a prepaid expense, seen from the paying side.
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Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 4.3 Other payables and other receivables (page 14).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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