Legal Definitions - prepaid income

Prepaid income refers to money received in advance for goods or services that have not yet been provided. It is also known as deferred revenue. This type of income is recorded as a liability on a company's balance sheet until the goods or services are delivered, at which point it is recognized as revenue.

For example, if a company receives payment for a year's worth of services upfront, it would record that payment as prepaid income. As the company provides the services over the course of the year, it would recognize a portion of that prepaid income as revenue each month.

Another example is a magazine subscription. When a customer pays for a year's worth of magazines upfront, the publisher records that payment as prepaid income. As the publisher delivers each issue of the magazine, it recognizes a portion of that prepaid income as revenue.