Accrued and deferred income in Xero, explained

Written by an ACA-qualified finance manager · about the author · Last reviewed 1 July 2026

If prepayments and accruals put costs in the right month, accrued and deferred income do the same for revenue. Here’s what they are and how to handle them in Xero.

The one-line version

Accrued income: you’ve earned it but haven’t invoiced yet - so you recognise the revenue now and hold it as an asset until you bill. Deferred income: you’ve been paid (or invoiced) for something you haven’t delivered yet - so you hold the revenue as a liability and release it as you earn it. Both exist to put revenue in the month it was earned, regardless of when you invoice or get paid.

Accrued income, worked

You complete £4,000 of work in March but won’t invoice until April. To recognise it in March, book £4,000 to revenue and to an accrued income account on the balance sheet. When you raise the April invoice, clear the accrued income so you don’t count it twice.

Deferred income, worked

You invoice £12,000 in January for a year’s service. Only £1,000 is earned in January - the rest is owed as delivery. Post the £12,000 to deferred income (a liability) and release £1,000 to revenue each month. This is the classic pattern for subscriptions, retainers and annual contracts, and it’s where SaaS and services businesses most often get month-end revenue wrong.

Keep a schedule

Both are movement schedules: opening balance, add new amounts, release what’s earned or billed, and tie the closing total to the GL. If it doesn’t tie, an invoice has probably hit revenue directly instead of going through the deferral. The discipline is identical to prepayments and accruals - just on the income side.

Frequently asked questions

What’s the difference between accrued and deferred income?

Accrued income is revenue earned but not yet invoiced (held as an asset until billed). Deferred income is money invoiced or received for something not yet delivered (held as a liability and released as it’s earned). Both move revenue into the month it was earned.

How do I handle deferred income for a subscription in Xero?

Post the full invoice to a deferred income liability account, then journal the earned portion to revenue each month over the contract. Keep a schedule so the closing deferred balance ties to the general ledger.

Does Xero calculate deferred revenue automatically?

Not natively for most plans - deferred and accrued income are usually manual journals supported by a schedule. Some add-ons automate revenue recognition, but the core discipline is rolling the schedule forward and tying it to the ledger each month.