Managing Current and Future Impacts of Deferred Income [SUBSCRIBERS-ONLY]

Paying closer attention to deferred income performance is a must. Monitoring trends and actively managing deferred income will optimize current and future management of this valuable resource. The best approach is to view deferred income as both a current period key performance indicator (KPI) and a resource to support future activities.

Deferred income (also known as unearned revenue) is generally defined as funds received by an organization for “goods or services that have yet to be provided or delivered.” Deferred income is reflected as a liability on the balance sheet because there is an obligation to fulfill a service or provide goods in the future or the funds must be returned.

Typical examples of deferred income include prepayment of workshop and event registration fees, early receipt of next year’s membership dues, prepaid rental income and prepaid advertising and sponsorship income and other similar exchange transactions where funds are received for services or goods that will be provided in the future.

To optimize deferred income’s impact on sustainability and financial health you need to separately manage current period KPIs while also managing future resource utilization. Both are equally important but involve juggling two distinct time periods. Avoid being biased to one period over the other.