| an expenditure shown as a cost of operation carried forward and written off in one or more future periods. |
Deferred Charge
A prepaid expense that is recognized on the balance sheet as an asset until it is used.
Investopedia Commentary
Recording deferred charges in this manner ensures that a company is adhering to Generally Accepted Accounting Principles (GAAP), by matching revenues with expenses.
A prime example of a deferred charge is rent. Consider the case where a company pays a lump sum to their landlord to cover six months rent. As each month approaches, the company would use a portion of the funds from their deferred charges account and recognize this portion as an expense on their financial statements. This process ensures that their revenues for the month are matched with the expenses incurred for that month.
Related Links
Reading The Balance Sheet
See also: Asset, Balance Sheet, Current Assets, Deferred Revene, Expenses, GAAP, Other Current Assets, Revenue