Deferred Revenue Expenditure

What is Deferred Revenue Expenditure?

Deferred revenue expenditure is an expenditure which is incurred in the present accounting period but its benefits are incurred in the following or the future accounting periods. This expenditure might be written off in the same financial year or over a period of a few years.

Let us take an example. In the case of a startup company, the firm invests heavily in marketing and advertisement in the beginning. They do this to capture some position in the market and amongst competitors. This expense, done in the beginning, reaps the benefits over several years.

Examples of Deferred Revenue Expenditure

  • Prepaid Expenses: The firm makes a substantial investment in certain activities like sales promotion activities – the benefit for which will be incurred over the number of accounting periods, but the expenditure is born in the same year. This expenditure will be written off over the number of periods.
  • Exceptional Losses: Expenditure relating to exceptional losses by, for example, by an earthquake, floods, or unforeseen losses by loss or confiscation of property.
  • Services Rendered: Since the expenditure for the services rendered cannot be allocated to one year only, and also there be no asset created with such expenditure—for example, the cost of research and development for the company.
  • Fictitious Asset: Fictitious assets in cases, whose benefit is derived over a long period.
Deferred Revenue-Expenditure

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Features

  • Expenditure is characterized by revenue and its features.
  • The benefit of the expenditure is accrued for more than one year of an accounting period.
  • The amount of expense is huge since its a one-time investment for the business and is therefore deferred over a period, which is more than one accounting period.
  • These accrue over the future years, either partially or entirely.

Differences between Capital Expenditure and Deferred Revenue Expenditure

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This article has been a guide to Deferred Revenue Expenditure and its definition. Here we discuss deferred revenue expenditure examples and their differences from capital expenditure. You can learn more about accounting from following articles –

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