Deferred Income (PCA): Mastering Account 487 at Year-End Close

You collect a 12,000 euro invoice in December for a service that will be delivered throughout the following year. Should you book it entirely in the result of the year now closing? No. That is precisely what deferred income is for, and it is one of the year-end adjustments we correct most often in subscription, SaaS and annually billed service files.

The stakes are not cosmetic. Deferred income handled poorly artificially inflates the year's revenue, distorts the margin, and can trigger corporate income tax on revenue that has not yet been earned. Conversely, ignoring it exposes you to a reassessment in the event of an audit, because matching revenue to the period it belongs to is not optional.

Deferred income (PCA, account 487) is revenue already invoiced and often collected, but corresponding to a service not yet performed or goods not yet delivered at the closing date. At year-end, the unearned portion is removed from the result; at the start of the following year, it is recognized as revenue as the service is delivered. The amount is recorded net of tax: VAT was already collected when the invoice was issued.

Deferred income is the portion of an invoice issued during the year that pays for a service belonging to the following year. Invoicing and collection precede delivery. In accounting terms, the revenue is earned only as the service is actually performed.

Typical cases we encounter:

• a software or SaaS subscription billed twelve months upfront;
• a maintenance or support contract paid in advance;
• rent collected in advance by a leasing company;
• a consulting engagement billed at kickoff but spread over several months;
• an advance payment on a future service, where it pays for delivery still to come.

The common thread: the cash has come in, the commitment has not been fulfilled. As long as the counterpart has not been provided, the revenue must not appear in the result of the closed year.

The French General Chart of Accounts (Plan comptable general) clearly defines the nature of these items. Article 321-7 of the PCG states: "Deferred income constitutes liabilities." That single sentence is all article 321-7 contains, in the section devoted to the definition of liabilities. In other words, deferred income is not earned revenue: it is a service obligation owed to the customer, shown as a liability on the balance sheet.

The measurement rule, however, is not found in article 321-7. It belongs to the section on the measurement of liabilities, in article 323-9: deferred income is measured at the amount of the revenue corresponding to the service still to be performed or the goods still to be delivered. This is the rule that justifies the pro rata temporis calculation, contract by contract.

A point not to confuse: the "net of tax" wording appears in neither of these two articles. Recording deferred income at its net-of-tax amount is not the wording of any PCG text; it is a practical consequence of the VAT rules. VAT was already collected and reported when the original invoice was issued, so the year-end adjustment concerns only the net-of-tax revenue, without affecting the VAT account.

For tax purposes, the principle of matching revenue to the period derives from article 38 of the French Tax Code (Code general des impots) and from the administrative guidance (BOFiP, on matching receivables and payables to the period). Revenue is taxable only when earned, that is, when the service is delivered or the goods are supplied.

Account 487 "Deferred income" is an adjustment account, classified as a liability on the balance sheet. It mirrors the revenue accounts (706 "Service revenue", 707 "Merchandise sales", 752 "Property income" as the case may be).

The logic comes in two steps.

At year-end: remove the unearned portion#

You take out of the result the part of the invoice that does not relate to the closed year. The entry credits account 487 against a debit to the relevant revenue account:

• debit 706 (or 707, 752, etc.): the not-yet-earned portion;
• credit 487: deferred income, for the same net-of-tax amount.

The year's revenue is thus brought back to what was actually performed.

At the start of the following year: recognize the revenue#

The year-end entry is reversed at the opening, or the revenue is recognized as the service is delivered. You debit account 487 and credit the revenue account, month by month as time elapses.

Take a software vendor that invoices, on 1 October of year N, an annual subscription of 12,000 euros net of tax (14,400 euros including 20% VAT), covering the period from 1 October N to 30 September N+1. The year-end is 31 December N.

At invoicing, the recorded revenue is 12,000 euros. Yet at 31 December N, only three months have elapsed (October, November, December). The service delivered during the year amounts to 12,000 x 3 / 12 = 3,000 euros. The remaining nine months, 9,000 euros, relate to the following year.

Year-end entry at 31 December N:

• debit 706 Service revenue: 9,000 euros;
• credit 487 Deferred income: 9,000 euros.

Revenue for year N on this contract is thus brought back to 3,000 euros. At the start of year N+1, the 9,000 euros are recognized, either by reversal or at a rate of 1,000 euros per month through September N+1.

VAT is untouched: it was collected on the 12,000 euros at the October invoicing. Account 487 only carries the net-of-tax amount.

In subscription, SaaS and annually paid service files, the balance of account 487 tells you a great deal about revenue quality. A large deferred income balance means you have collected cash in advance, which is comfortable, but that this revenue is still to be delivered and therefore still at risk. That is precisely the distinction between collecting and earning.

We systematically look at the ratio between recognized revenue and the account 487 balance. Deferred income growing faster than recognized revenue can signal a shift toward annual billing, which eases immediate cash but may mask a slowdown in recognized growth. This connects to the trade-off between annual and monthly subscriptions and cash flow that we address in our advisory files.

The most common risk is not the outright omission of deferred income, which usually ends up being obvious. It is the rough pro rata calculation. A pro rata computed in whole months when the contract starts mid-month, a mis-entered start date, an amendment not factored in: these small gaps, multiplied across dozens of contracts, create a significant revenue mismatch. In an audit, the administration precisely checks the consistency between contractual dates and the pro rata calculation.

A second blind spot: confusing deferred income with accrued income. Deferred income concerns revenue already invoiced but not yet earned; accrued income, conversely, concerns a service delivered but not yet invoiced (account 418). The two adjustments often go together at year-end, in opposite directions.

Here is the sequence we apply at year-end to secure this line.

1. List every contract invoiced during the year whose service spills over into the following year.
2. For each, retrieve the start date, the end date and the net-of-tax amount.
3. Calculate the unearned portion pro rata temporis, in days if needed for contracts straddling a month.
4. Post the removal entry crediting account 487 against a debit to the revenue account.
5. Document the calculation in a tracking table, contract by contract, kept with the year-end file.
6. Plan the recognition over the following year and check the gradual clearing of account 487.

This tracking table is also a steering tool: it gives you, at any moment, the book of revenue already collected and still to be delivered.

The logic of account 487 does not change in 2026, but two topics deserve attention. First, the roll-out of e-invoicing changes the timing and traceability of invoice issuance: invoicing dates will be harder to rearrange after the fact, which makes a clean pro rata calculation all the more important. Second, the VAT reform and the recodification of the texts on 1 September 2026 do not alter the net-of-tax treatment of deferred income, but they require checking that VAT was indeed collected in the right period on the original invoice. If a calculation is in doubt, our VAT calculator and the support of your accountant help secure the net-of-tax amount to adjust.

• Every contract straddling two years is listed.
• The pro rata is calculated in days for contracts with irregular dates.
• The amount posted to account 487 is net of tax.
• The original VAT was collected and reported in the right period.
• A contract-by-contract tracking table is attached to the year-end file.
• Recognition over the following year is planned and the clearing of account 487 verified.
• The distinction between deferred income, accrued income and prepaid expenses is settled for each case.