What Is the Meaning of Deferred Revenue Expenditure?

Deferred revenue expenditure is an asset in a corporate balance sheet.

A company's senior leadership typically reviews corporate financial management strategies to ensure that the company has sufficient liquidity to pay for short-term and long-term operating expenses. Businesses often pay for operating expenses in advance based on contracts or financial incentives.

Definition

A deferred revenue expenditure, also known as a prepaid expense, is a cost that an organization pays for at once but receives benefits in the future. Examples include insurance premiums, rent and advertising expense that companies pay for at the beginning of a year or quarter.

Accounting

U.S. generally accepted accounting principles and international financial reporting standards require that organizations report a deferred revenue expenditure at market value on the day of the transaction. To record a prepaid expense, an accountant debits the prepaid expense account and credits the vendor payables account.

Financial Reporting

U.S. GAAP and IFRS require that organizations report deferred revenue expenditures as short-term assets in the balance sheet, also called the statement of financial condition or statement of financial position.

References

• Investopedia: Deferred Charge
• Davis Langdon: Deferred Revenue Expenditure