How is a Deferred Gain recorded in financial statements?

A deferred gain is recognized in financial statements as a deferred inflow. This accounting treatment occurs because a deferred gain represents revenue that has been earned but is not yet recognized in the financial statements. Instead of being recorded as immediate revenue, it is held in a liability account until the earnings process is complete, or the revenue can be recognized.

This accounting approach aligns with the revenue recognition principle, which states that revenue should be recognized when it is earned and realizable, not immediately upon the receipt of cash or other consideration. The deferred inflow reflects the obligation of an entity to provide goods or services in the future, ensuring that financial statements accurately represent the company's financial position and performance over time.