2017-03-29 00:00:00BookkeepingEnglishDefer your expenses until they actually occur to enhance the consistency of your financial statements and your ability to make smarter...https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/06/business-owner-tracks-deferred-expenses.jpghttps://quickbooks.intuit.com/ca/resources/bookkeeping/account-deferred-expenses/Account for Deferred Expenses

Account for Deferred Expenses

1 min read

You may come across a situation where you pay a bill in advance. This prepaid bill is a type of transaction called a deferred expense, which arises when you want the expense of an item to hit in a later month than the cash payment was made. By performing certain journal entries, you can defer the expense from when you made the payment to when the benefit is received. A deferred expense can only be entered if you are using an accrual method of accounting. As an example, imagine you pay $1,000 in April for registration fees for a conference that will happen in September. Although the cash payment was made in April, the actual benefit of the conference is not received until several months later. Plus, if the conference is cancelled or you are unable to make it, you may end up getting a refund. Therefore, you don’t want to recognize an expense until you’ve actually gone to the conference. Other examples of deferred expenses include insurance paid in advance, rent paid in advance, and fixed assets that depreciate over time. The deferral process of an expense is done by putting the original payment to a balance sheet account. The account you’d normally use is a prepaid account. Then, once the benefit is received, you reduce the balance in the prepaid and recognize the expense. You make this happen with a journal entry that debits the prepaid and credits the expense. By entering these entries, you can defer an item you paid at the present time and have the expense hit in the future. This delay in the reporting of an expense makes your financial statements more accurate, reliable, and useful in making decisions.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

What Do You Know About Gift Card Accounting?

Do your clients sell gift cards, issue them for promotional events, or…

Read more

How to Set up Contra Accounts

Setting up a contra account is an easy way to show amounts…

Read more

What is a Deferred Tax?

Deferred taxes are current tax payments that you push into the future,…

Read more