Prepaid income, also known as deferred revenue, occurs when a business receives payment from a customer before providing the goods or services that the payment pertains to. For instance, a company may receive payment for a subscription service at the beginning of the year but delivers the service monthly thereafter.

In accounting, prepaid income is recorded as a liability on the balance sheet under current liabilities, as the company owes the performance of the service or the delivery of the goods to the customer. As the company fulfils its commitment, it recognizes a portion of the prepaid income as revenue on the income statement. For example, if a training provider receives $12,000 in January for a year-long training program, it records $12,000 as prepaid income and recognizes $1,000 as revenue each month as the service is delivered.

Tracking prepaid income is crucial for maintaining accurate financial statements, complying with accounting principles such as the matching principle, and providing a clear picture of a company's cash flow and obligations.