It is an expense of revenue as well as of capital nature, the Revenue Expense is transferred to P&L A/C and the balance portion is treated as Assets.
DEFERRED REVENUE EXPENSES
General rule:-
Each and every expenses whether revenue or capital, have only one destination point; that is P&L A/C, Revenue Expenses are fully transferred to P&L A/C in the year of occurrence, Capital Expenses are also transferred to P&L A/C in small parts "called depreciation".
Deferred Revenue Expenses:-
These expenses have both the features, Revenue as well as Capital, there name suggests that they are expense of Revenue Nature but their work suggests that they are expense of Capital Nature.
A portion of these expenses is transferred to P&L A/C and the balance portion is DEFERRED or DELAYED.
Hence these expenses are called Deferred Revenue Expenses.
They are delayed to be transferred to P&L A/C because;
These expenses generate some economic benefits to the organisation in Future and they are spread in more than one accounting periods.Hence the expenses incurred to earn these benefits should also be recognized in future.As per the Matching Concept, the expenses must be recognized in that period when its matching revenue is recognized.Therefore a portion of such expenditure is charged to the P&L A/C according to the benefits generated in that year and remaining portion is shown on the asset side of the balance sheet as Deferred Revenue Expenses.
Important Points
An advertisement Expense should not be deferred because a Huge Amount is spent on advertisement. It should have a capability to generate some economic benefits in the future.
Advertisement expenses incurred to Launch A New Product can be treated as deferred revenue expenses.
A Routine Advertisement Expense should not be deferred.
Examples
Underwriting commission
Preliminary Expenses
Discount on issue of shares and debentures,Inauguration Expenses on opening of a new branchCompensation paid to workers under Voluntary Retirement scheme (VRS).
Real Life Examples
Expenses incurred on the education of the children. [Benefit in future; increase in future income of the family]Expenses incurred by a person to maintain his good health. [Benefit in future, savings in medical expenses]
NOTE
All Deferred Revenue Expenses are Intangible Assets as well as Fictitious Assets.
DEFERRED REVENUE EXPENSES
General rule:-
Each and every expenses whether revenue or capital, have only one destination point; that is P&L A/C, Revenue Expenses are fully transferred to P&L A/C in the year of occurrence, Capital Expenses are also transferred to P&L A/C in small parts "called depreciation".
Deferred Revenue Expenses:-
These expenses have both the features, Revenue as well as Capital, there name suggests that they are expense of Revenue Nature but their work suggests that they are expense of Capital Nature.
A portion of these expenses is transferred to P&L A/C and the balance portion is DEFERRED or DELAYED.
Hence these expenses are called Deferred Revenue Expenses.
They are delayed to be transferred to P&L A/C because;
These expenses generate some economic benefits to the organisation in Future and they are spread in more than one accounting periods.Hence the expenses incurred to earn these benefits should also be recognized in future.As per the Matching Concept, the expenses must be recognized in that period when its matching revenue is recognized.Therefore a portion of such expenditure is charged to the P&L A/C according to the benefits generated in that year and remaining portion is shown on the asset side of the balance sheet as Deferred Revenue Expenses.
Important Points
An advertisement Expense should not be deferred because a Huge Amount is spent on advertisement. It should have a capability to generate some economic benefits in the future.
Advertisement expenses incurred to Launch A New Product can be treated as deferred revenue expenses.
A Routine Advertisement Expense should not be deferred.
Examples
Underwriting commission
Preliminary Expenses
Discount on issue of shares and debentures,Inauguration Expenses on opening of a new branchCompensation paid to workers under Voluntary Retirement scheme (VRS).
Real Life Examples
Expenses incurred on the education of the children. [Benefit in future; increase in future income of the family]Expenses incurred by a person to maintain his good health. [Benefit in future, savings in medical expenses]
NOTE
All Deferred Revenue Expenses are Intangible Assets as well as Fictitious Assets.