Question

What is deferred revenue expense and deferred expense? Give an example of each?

Answer 1

· Deferred Revenue is that revenue that has been REALIZED in CASH, BUT it is not yet recorded as ‘earned Revenue’, rather, it was DEFERRED to be recorded as Revenue in future period .
For example: If a client pays certain amount in advance for a service that will be provided to him in coming next year, the amount so received will be recorded as “Unearned revenue” (a liability) account, rather than recorded as ‘revenue’ for Income Statement.
The revenue got DEFERRED for future period and will be recorded as ‘revenue’ when the services will be provided to that client.

· Deferred Expense is that expense that has been PAID in current period, BUT was not recorded as ‘expense’ on Income Statement YET.
For example, if Insurance amount is paid for the coming year in current year as an advance, it gets recorded as “Prepaid Insurance” (an asset), rather than recorded as ‘insurance expense’ (an expense account). The expense gets deferred to be recorded in coming year when such insurance period gets expired.