Balance Sheet - Deferred Charges

Deferred charges are expenses incurred which the company management prefers to write off over a specific period of time instead of deduct it once at the month of the expenses.

Deferred charges are expenses incurred which the company management prefers to write off over a specific period of time instead of deduct it once at the month of the expenses.

Deferred charges are stated in assets side on balance sheet instead of liabilities site but deferred charges are not tangible assets, and deferred charges are nearly as intangible as good-will in old accounting practices.

Deferred expenses and prepaid charges are very similar, in fact, prepayments are a special type of deferred charges, where

1. The company has a legal right to collect the services paid in advance.

2. The charges is written off during the specific period to time of the services.

For example if a company which already paid a prepaid expenses on rental also incurred expenses on transportation of moving into the new building. The company management may set the expenses up as a deferred charge to be written off over certain period of time instead of deduct the whole expenses from the from the earning of the month which the company moved.

Organization Expenses in balance sheet is another deferred charges refer to the expenses incurred to set up a new company or operation. The expenses of issuing bonds is another good example of deferred charges especially the difference (discount) between the par and the amount received by the company, the amount will be written off gradually over the life of the bond issue.