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What is the difference between a deferred expense and a prepaid expense?

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What is the difference between a deferred expense and a prepaid expense?
posted Jun 30, 2017 by Diya Borda

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1 Answer

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Often the term deferred expense indicates that a payment was made more than one year before the cost is expensed. This deferred expense will be reported on the balance sheet as a noncurrent or long-term asset.

Often the term prepaid expense indicates that a payment was made less than one year before the cost is expensed. This prepaid expense is reported as a current asset.

Sometimes an accountant does not intend for there to be a difference. For example, an accountant might say that part of a company's six-month insurance premium should be deferred to the current asset account Prepaid Insurance. Accountants also state that any prepayment of a future expense will result in an adjusting entry known as a deferral.

answer Jul 1, 2017 by Mukul Chag
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