Deferred Revenue Expenditure

Deferred Revenue Expenditure:

It makes you understand very easy what Referred Revenue Expenditure is if you know the meaning of Defer, which is “put off (an action or event) to a later time” Deferred is a past form of Defer.

All income and costs in a company is not directly correspond with goods and services sold or the assets purchased. Deferred Revenue Expenditure is a one type of revenue expenditure which is “incurred during an accounting year, but its benefits are to be derived over a number of following accounting periods”. These expenses are unusually bulky in amount and, fundamentally, the benefits are not consumed within an accounting year.

Accounting Treatment of Deferred Revenue Expenditure:

A part of amount which is charged to the Profit and Loss account in the current accounting year is reduced from the total expenditure and the rest amount is shown in the Balance Sheet as a Fictitious Assets and so on.

Examples:

A very simple example here to understand you the matter, such as Advertising expenditure, business can spend money on an advertising promotion, but not realize the increased sales immediately after advertisement over, yes will be benefitted after several months down the line when customers attract the full impact of the advertisements.