Deferral of Income

Deferral of Income

Deferral of income refers to the postponement of recognizing income for tax purposes until a future date. This accounting method allows individuals or businesses to delay reporting certain income, thus potentially reducing their current tax liability.

For example, if a business receives payment in advance for services to be rendered in the following year, it may choose to defer this income until the year when the services are actually provided. This treatment aligns the income recognition with the time when the services are delivered, adhering to the revenue recognition principle.