Today we are looking at deferred charge. A deferred charge is a prepaid expense that is regarded as an asset on a balance sheet. This prepaid expense is carried forward until it is actually used. Two common examples of a deferred charge is prepaid insurance and rent.
It is extremely common for businesses to pay rent for a year to receive a discount. When a company prepaid’s the rent in advance, it is recorded on the balance sheet. As each month passes, the company will recognize the portion of that prepaid rent as an expense (debit entry) on the income statement and a credit from the prepaid rent account on the balance sheet.
It is important to note that this is considered an asset on the balance sheet until it is fully expensed.
Disclaimer: This blog is for information purposes only and is not intended to provide investing, accounting, tax or legal advice and should not be relied upon.