Deferred Revenue Expenditure

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Meaning – Deferred Revenue Expenditure is an expense which is actually revenue in nature and its beneficial results in more than one accounting period. This expense does not create an asset.

To understand it properly let’s see few examples – 

Any movie theater when changing its single screen to multiplex; the expense made for that change is Deferred Revenue Expense as it cannot be a book to P&L in one accounting year.

Whereas the expense made for the repair of the projector of that theater is revenue expenditure so there should not be any confusion between revenue expense and deferred revenue expense.

Other examples of deferred revenue expenditure are – 

  • • Heavy expense on Research and development.
  • • Preliminary expenses during opening new company.
  • • Expenses made while shifting the business to a new place.
  • • Major repair expenses.
  • • Commission on the issue of shares and debentures.
  • • Discount on issue of shares or debentures

A popular example of deferred revenue expense is a heavy promotional advertisement. Though we pay it once, the benefit spread over several months/years.

Journal Entry –

Mr. “A Ltd.” paid $150,000 for new product promotional advertisement and the advertisement is going to run for the next two years.

[150,000 / 24 months = 6,250 per month]

DR/CR       Account                                                      Amount 

Debit   –     Deferred Advertisement Expense …………. 150,000

Credit  –     Bank …………………………………………………. 150,000

 

DR/CR      Account                                                      Amount 

Debit   –    Advertisement Expense ……………………….. 6,250

Debit   –    Deferred Advertisement Expense ………….. 6,250

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