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I have a question how to handle deferred income in the indirect cash flow.
In this scenario I bill my customer in December for services starting in January for lets say 100 €. Payment is not received by end of year.
Bank 0
AR 100 €
Deferred income 100 €
Profit after tax 0In the cash flow I would start with the Profit after tax which is zero, since I have to recognise the revenue next year. Then I would deduct increase in accounts receivable which would give me a negative cash flow of 100 €.
But in reality there has been no movement in cash. So my question is how to handle payments received where the income is not yet recognised. Where do I put an adjustment, or should I deduct changes in deferred income against accounts receivable in the statement of cash flow?
Thanks in advance!
FredrikThe double entry for the deferred income is what?
Dr Accounts Receivable
Cr An account that will show a credit balance and be included as a liability on the statement of financial positionSo we have an increase in Receivables and that is cancelled out by an increase in the Accounts Payable
OK?
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