Income and Deferred Income
The concept of income and deferred income basically relate to the time period. There is one of the important concept of accounting that income will be charged in a period where the relevant expenditure charged. This concept is called matching concept. Deferred income recognition is basically is implication of matching concept. The typically example of deferred income under this concept is Govt Grant for a specific purpose.
Example of Deferred Income
The Govt give 60,000 Grant for a School construction to an NGO the school will be constructed in three years.
The transaction will be recorded in first year as
Cash A/c 60,000 Dr
Grant Income 20,000 Cr
Deferred Grant income 40,000 Cr
The deferred income concept may also be explained that income must be charged in a period to which it relates. Therefore any excess amount will be recorded as liability in the and will be accounted for in next period.
Example of Deferred Income
Rent received for three year @ 5000 per year.
Cash 15,000 Dr
Rent income 5,000 Cr
Deferred Rent Income 10,000 Cr
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