This article deals with getting prepayments for services to be performed at a later date.

If you are receiving monies from customers, but have not yet actually performed the services, then these monies are actually a liability to be satisfied in the form of work later on.

For Example: An entity pays you $3000 up front to perform fitness training classes throughout the upcoming month. You would recognize this prepayment as “Unearned” and thus this potential income will be Deferred to a later date.

So, for now, in your bookkeeping, post the $3000 into an “Other Current Liability” type of account. You can title this account something like “Services Deferred Income”, or perhaps “Consulting Deferred Income”, or something similar. Most likely, in this scenario, you will satisfy the obligation within 30 days. In other words, you would have, by the end of the month, “Earned” this $3000 because you would have performed all fitness classes that you were prepaid to do.

Precise record-keeping of all fitness classes performed is critical here, so you can prove you have satisfied the obligation, and thus can begin anew the next month.

Precise record-keeping is also important here so you can recognize your “Earned” income in your books. This will be important for tax preparation reasons as well.

You can easily post a journal entry in your books to convert your previous “Deferred Income” into actual “Income”.

Here is an example journal entry to do so:

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.