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Deferral Example: Unearned Revenue
Deferral Example: Unearned Revenue
Published: 2013/10/30
Channel: The Accounting Tutor
Accounting in 10 Minutes or Less - Deferral vs. Accrual
Accounting in 10 Minutes or Less - Deferral vs. Accrual
Published: 2016/06/03
Channel: Professor Nance
Deferral Adjusting Entries
Deferral Adjusting Entries
Published: 2013/03/18
Channel: Faye Talbot
Deferrals and Accruals Video Lecture
Deferrals and Accruals Video Lecture
Published: 2013/10/04
Channel: Bruce Marshall
Mario Maker - Epic Exploration Puzzles by Jon | Powerup Deferral and The Shell of Reckoning
Mario Maker - Epic Exploration Puzzles by Jon | Powerup Deferral and The Shell of Reckoning
Published: 2017/01/09
Channel: CarlSagan42
accounting 221 video-Accrual vs Deferral
accounting 221 video-Accrual vs Deferral
Published: 2013/04/14
Channel: Elizabeth Lockett
Deferral Tips from Former Admissions Officers
Deferral Tips from Former Admissions Officers
Published: 2017/12/08
Channel: AdmissionsCheckup.com
Seaway - Deferral
Seaway - Deferral
Published: 2013/10/15
Channel: Mutant League Records
What Is Tax Deferral?
What Is Tax Deferral?
Published: 2009/05/11
Channel: TaxFoundation
Chap 03 Lecture:  Accruals and Deferrals
Chap 03 Lecture: Accruals and Deferrals
Published: 2011/09/14
Channel: oruaccounting
The Myth of Tax Deferral
The Myth of Tax Deferral
Published: 2018/03/16
Channel: Bottom Line Inc
Benefits of Tax Deferral Retirement Investing | Fidelity
Benefits of Tax Deferral Retirement Investing | Fidelity
Published: 2017/06/23
Channel: Fidelity Investments
Accrual Accounting (Adjusting Entries)
Accrual Accounting (Adjusting Entries)
Published: 2014/10/19
Channel: Stefan Ignatovski
The Journey Ahead: The Benefits of Tax Deferral
The Journey Ahead: The Benefits of Tax Deferral
Published: 2017/10/19
Channel: Jackson
Deferral Template In Navision
Deferral Template In Navision
Published: 2018/01/24
Channel: Koenig Solutions
Actual Deferral Percentage Test
Actual Deferral Percentage Test
Published: 2012/03/17
Channel: Beth Harrington
Adjusting Entries  Deferrals -Part 2
Adjusting Entries Deferrals -Part 2
Published: 2010/08/31
Channel: profthompson
Accounting Cycle: Adjusting Entries - Deferrals
Accounting Cycle: Adjusting Entries - Deferrals
Published: 2015/08/25
Channel: Brian Routh TheAccountingDr
Deferral Posting in Microsoft Dynamics NAV
Deferral Posting in Microsoft Dynamics NAV
Published: 2016/07/19
Channel: DSA Global Solutions
Revenue / Expense Deferral in Dynamics GP
Revenue / Expense Deferral in Dynamics GP
Published: 2009/07/14
Channel: RoseASP
Regroup After an Early College Admissions Deferral or Rejection
Regroup After an Early College Admissions Deferral or Rejection
Published: 2017/12/14
Channel: usnewsandworldreport
Accrual and Deferral postings in fi
Accrual and Deferral postings in fi
Published: 2015/05/15
Channel: Entertainment Plus
How to respond to Early Decision or Early Action Deferral
How to respond to Early Decision or Early Action Deferral
Published: 2015/12/07
Channel: Admissions Intel
Accruals and Deferrals in pictures
Accruals and Deferrals in pictures
Published: 2016/02/11
Channel: Cheri Bergeron
Accrual & Deferral Adjustments | Financial Accounting | CPA Exam FAR | Chp 4 p 1
Accrual & Deferral Adjustments | Financial Accounting | CPA Exam FAR | Chp 4 p 1
Published: 2016/07/27
Channel: Farhat's Accounting Lectures
SAP FICO Accrual Deferral Documant - 22
SAP FICO Accrual Deferral Documant - 22
Published: 2017/03/20
Channel: SAP FICO IN TELUGU
What Is A Deferral For A Ticket?
What Is A Deferral For A Ticket?
Published: 2017/07/01
Channel: sparky Facts
Accruals and Deferrals: Financial Accounting
Accruals and Deferrals: Financial Accounting
Published: 2013/07/10
Channel: AccountingED
America Saves Week - Automatic Deferral
America Saves Week - Automatic Deferral
Published: 2016/02/22
Channel: State of Missouri Deferred Compensation Plan
Dealing With an EA or ED Deferral
Dealing With an EA or ED Deferral
Published: 2013/03/20
Channel: AdmissionsConsultant
Deferrals: How to automatically defer revenues and expenses in Microsoft Dynamics 2016
Deferrals: How to automatically defer revenues and expenses in Microsoft Dynamics 2016
Published: 2016/08/10
Channel: Christos Pittis
What is a 401(k) Deferral
What is a 401(k) Deferral
Published: 2016/03/07
Channel: McGuire Law Firm
Dynamics GP Expense Deferral
Dynamics GP Expense Deferral
Published: 2009/07/02
Channel: Technology Management Concepts
Dynamics NAV 2016: Deferrals
Dynamics NAV 2016: Deferrals
Published: 2016/09/29
Channel: iNECTA - Microsoft Dynamics Gold Certified Partner
Defer / Claim a Past Deferral
Defer / Claim a Past Deferral
Published: 2015/12/28
Channel: RunSignUp
How To: Revenue Expense Deferral
How To: Revenue Expense Deferral
Published: 2016/03/02
Channel: LoganConsulting
Finances - Fee Deferral - Undergrad Student
Finances - Fee Deferral - Undergrad Student
Published: 2015/06/19
Channel: UOFT NGSISACORN
Top Tax Deferral Strategies
Top Tax Deferral Strategies
Published: 2018/03/09
Channel: Pure Financial Advisors, Inc.
IFRS 14 Regulatory Deferral Accounts
IFRS 14 Regulatory Deferral Accounts
Published: 2014/02/26
Channel: Wconsulting
YALE APPLICATION TIPS, DEALING WITH DEFERRAL, & GAP YEARS // COLLEGE Q & A PART 3
YALE APPLICATION TIPS, DEALING WITH DEFERRAL, & GAP YEARS // COLLEGE Q & A PART 3
Published: 2018/03/21
Channel: Josh Beasley
Synergy Attorney Fee Deferral Services
Synergy Attorney Fee Deferral Services
Published: 2016/03/14
Channel: Synergy Settlement Services
Deferral Meaning
Deferral Meaning
Published: 2015/04/25
Channel: ADictionary
Monologue, Why Seek Tax Deferral
Monologue, Why Seek Tax Deferral
Published: 2014/08/05
Channel: SCrowCollateralCorp
The Accounting Cycle: Accrual and Deferral -- Revenue Tutorial
The Accounting Cycle: Accrual and Deferral -- Revenue Tutorial
Published: 2014/06/24
Channel: Dude Where's My Profit
What Does Admissions Deferral Mean?
What Does Admissions Deferral Mean?
Published: 2017/12/08
Channel: With Frank
ACC 120 Accruals and Deferrals
ACC 120 Accruals and Deferrals
Published: 2011/11/04
Channel: Drew Goodson
pension deferral numbers
pension deferral numbers
Published: 2014/05/24
Channel: UnionCountyWatchdog
Tax Deferral Strategies
Tax Deferral Strategies
Published: 2017/07/27
Channel: Tax Deferral Strategies
Khalid Atan: MTUC against en bloc deferral of minimum wage
Khalid Atan: MTUC against en bloc deferral of minimum wage
Published: 2013/03/03
Channel: KiniTV
Unearned Revenues Deferral Adjustments | Financial Accounting | CPA Exam FAR
Unearned Revenues Deferral Adjustments | Financial Accounting | CPA Exam FAR
Published: 2018/02/02
Channel: Farhat's Accounting Lectures
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WIKIPEDIA ARTICLE

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A deferral, in accrual accounting, is any account where the asset or liability is not realized until a future date (accounting period), e.g. annuities, charges, taxes, income, etc. The deferred item may be carried, dependent on type of deferral, as either an asset or liability. See also accrual.

Deferrals are the consequence of the revenue recognition principle which dictates that revenues be recognized in the period in which they occur, and the matching principle which dictates expenses to be recognized in the period in which they are incurred. Deferrals are the result of cash flows occurring before they are allowed to be recognized under accrual accounting. As a result, adjusting entries are required to reconcile a flow of cash (or rarely other non-cash items) with events that have not occurred yet as either liabilities or assets. Because of the similarity between deferrals and their corresponding accruals, they are commonly conflated.

  • Deferred expense: cash has left the company, but the event has not actually occurred yet. Prepaid expenses are the most common type. For instance, a company may purchase a year of insurance. After six months, only half of the insurance will have been 'used' with another six months of the insurance still owed to the company. Thus, the company records half of the payment as an outflow (an expense) and the other half as a receivable from the insurance company (an asset).
  • Deferred revenue: Revenue has come into the company, but the event has still not occurred – it is unearned revenue. A magazine company, for instance, may receive money for a one-year subscription. However, the company has not spent the resources in producing and delivering those magazines and thus accountants record this revenue as a liability equal to the amount of cash received. The magazine company, while now having more cash on hand, also now owes a year of magazines. The amount of each magazine that gets delivered is then taken out of liabilities and recorded as revenue during the economic period in which it actually happens, not just when the company gets paid for it.

Deferral (deferred charge)[edit]

Deferred charge (or deferral) is cost that is accounted-for in latter accounting period for its anticipated future benefit, or to comply with the requirement of matching costs with revenues. Deferred charges include costs of starting up, obtaining long-term debt, advertising campaigns, etc., and are carried as a non-current asset on the balance sheet pending amortization. Deferred charges often extend over five years or more and occur infrequently unlike prepaid expenses, e.g. insurance, interest, rent. Financial ratios are based on the total assets excluding deferred charges since they have no physical substance (cash realization) and cannot be used in reducing total liabilities.[1]

Deferred expense[edit]

A Deferred expense or prepayment, prepaid expense, plural often prepaids, is an asset representing cash paid out to a counterpart for goods or services to be received in a later accounting period. For example, if a service contract is paid quarterly in advance, at the end of the first month of the period two months remain as a deferred expense. In the deferred expense the early payment is accompanied by a related recognized expense in the subsequent accounting period, and the same amount is deducted from the prepayment.[2] The deferred expense shares characteristics with accrued revenue (or accrued assets) with the difference that an asset to be covered later are proceeds from a delivery of goods or services, at which such income item is earned and the related revenue item is recognized, while cash for them is to be received in a later period, when its amount is deducted from accrued revenues.

For example, when the accounting periods are monthly, an 11/12 portion of an annually paid insurance cost is added to prepaid expenses, which are decreased by 1/12 of the cost in each subsequent period when the same fraction is recognized as an expense, rather than all in the month in which such cost is billed. The not-yet-recognized portion of such costs remains as prepayments (assets) to prevent such cost from turning into a fictitious loss in the monthly period it is billed, and into a fictitious profit in any other monthly period.

Similarly, cash paid out for (the cost of) goods and services not received by the end of the accounting period is added to the prepayments to prevent it from turning into a fictitious loss in the period cash was paid out, and into a fictitious profit in the period of their reception. Such cost is not recognized in the income statement (profit and loss or P&L) as the expense incurred in the period of payment, but in the period of their reception when such costs are recognized as expenses in P&L and deducted from prepayments (assets) on balance sheets.

Deferred revenue[edit]

Deferred revenue (or deferred income) is a liability, such as cash received from a counterpart for goods or services that are to be delivered in a later accounting period. When such income item is earned, the related revenue item is recognized, and the deferred revenue is reduced. It shares characteristics with accrued expense with the difference that a liability to be covered later is an obligation to pay for goods or services received from a counterpart, while cash for them is to be paid out in a later period when its amount is deducted from accrued expenses.

For example, a company receives an annual software license fee paid out by a customer upfront on the January 1. However, the company's fiscal year ends on May 31. So, the company using accrual accounting adds only five months' worth (5/12) of the fee to its revenues in profit and loss for the fiscal year the fee was received. The rest is added to deferred income (liability) on the balance sheet for that year.

See also[edit]

References[edit]

  1. ^ "deferred charge". BusinessDictionary.com. 2010. Retrieved May 15, 2010. 
  2. ^ Curtis L. Norton; Michael A. Diamond; Donald P. Pagach (2006). Intermediate accounting: financial reporting and analysis. Cengage Learning. p. 25. ISBN 978-0-618-72185-6. Retrieved 2 April 2012. 

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