How is deferred income treated?

• A. Upfront payments from exhibitors/sponsors recorded as deferred income in current liabilities, then recognized as revenue when event takes place
• B. Upfront payments recognized as revenue immediately
• C. Deferred income is recognized as revenue at the end of the year
• D. Deferred income is not recognized until event occurs

Answer: (A)

In accrual accounting, revenue is earned when the promised service is delivered. Fees paid upfront by exhibitors or sponsors satisfy a future obligation to host the event, so they’re not revenue yet. Instead, that money sits as deferred income (a current liability) because the event hasn’t occurred and the obligation remains. When the event takes place and the service is provided, the liability is reduced and revenue is recognized, matching income to the period of delivery. Recognizing the money as revenue immediately would misstate earnings, and waiting until year-end or until the event occurs would also distort the timing of when the obligation is fulfilled.