deferred charges

Deferred Charge

An asset on a balance sheet that comes about from a business making payment for a good or service it has not yet received, but will in the near future. Prepaid expenses are expensed over time as the goods or services are received. A common example of a prepaid expense is an insurance policy. Another example is a lump sum payment for rent; if a company pays for a year's worth of rent in advance, it is recorded as a deferred charge. A deferred charge is also called a prepaid expense.

deferred charges

An accounting and tax concept in which nontangible costs that are expected to provide value over a number of years are booked as assets and then reduced each year by a pro rata amount as they are charged to expenses.

Example:

Acme Inc. pays a broker $75,000 to negotiate a 10-year lease on very favorable terms.

Year 1, day 1: Acme writes a check for $75,000 and books an asset for $75,000.

Year 1, day 2: Acme enters an expense for $7,500 (one-tenth of the total amount) and reduces the asset by $7,500. The net result is that, at the end of year 1, Acme has $75,000 missing from its bank account, but this is balanced by an asset of $67,500 and an expense of $7,500.

Years 2 through 10: Continue the same process as year 1, day 2 until the deferred charge is finally $0 and the last $7,500 is expensed.

If you do not properly account for such deferred charges on your taxes, you risk an audit, disallowance of expenses, penalties, and interest.

References in periodicals archive ?
Before New Standards: Reported as deferred charges (assets).
However, though the FASB did not object to AcSEC's undertaking this project on start-up costs, board members expressed concern that the FASB might not be able to support AcSEC's conclusions because the board had not specifically decided how its conceptual framework on assets applies to deferred charges.
Consequently, constrained current fund operations were evident in the form of annual deferred charges or operating deficits, approximating $2 million, during that time.
Deferred income tax assets and liabilities represent assets and liabilities, not residual deferred charges and credits.
for the refinancing of existing loans ($1,913,600), one-time cash expenses for the refinancing of existing loans ($539,300) and amortization of deferred charges ($643,700).
Moreover, free capital is limited when fixed and foreclosed assets and deferred charges are considered.
The net loss for the three months ended March 31, 2006, relates principally to derivative non-cash losses of $3,561,500, non-cash financing expenses for the refinancing of existing loans of $1,913,600, one-time cash expenses of $539,300 for the refinancing of existing loans, and amortization of deferred charges of $643,700.
Non-GAAP net loss excludes equity based compensation expenses (see footnote 1), software development costs capitalization and amortization (see footnote 2), employment termination and offices shutdown costs (see footnote 3) and amortization of debt discount and deferred charges (see footnote 4).
The increase in income was offset by the amortization of deferred charges amounting to $450,500 in fiscal 2005 compared to $125,400 for fiscal 2004.