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Deferral
From Wikipedia, the free encyclopedia
Deferred, in accounting, is any account where the asset or liability is not realized until a future date, 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
Deferred is also used in the university admissions process. It is the action by which a school rejects a student for early admission but still opts to review that student in the general admissions pool.
The term deferral is most commonly used in accounting as an abbreviation of deferred income (called also deferred revenue) or deferred expense (called also prepaid expense or prepayment).
Deferred income is a liability. It is recorded when an asset (e.g. receivable) is recorded, but the related income (i.e. revenue) will be earned only in the future.
Deferred expense is an asset. It is recorded when a liability is recorded, but the related expense will be incurred only in the future.
Example: Company A rents its building to Company B, which has its office in the building. Before the year ending 31 December 2005, the company A issues an invoice to company B. The invoice covers rent for two years: 1 January 2005 to 31 December 2006.
Total rent for the two years is 1,000.
Accounting in Company A as of 31 December 2005 Debit Accounts Receivable 1,000 Credit Income 500 (rent for 2005) Credit Deferred income 500 (rent for 2006) Accounting in Company B as of 31 December 2005: Debit Rental expense 500 (rent for 2005) Debit Deferred expense 500 (rent for 2006) Credit Accounts payable 1,000
