In accounting all expenses which are incurred for generating the revenue for the accounting or financial year is to be accounted for in the same year so that company does not deviate from matching concept of accountancy according to which a company should account for all the costs which are incurred in generating the revenue for a particular period. However there are some expenses which cannot be accounted in this way and they are called deferred revenue expenditure.
Deferred revenue expenditure refers to that expense which is incurred in the current year but the benefit of it will be spread over 2 to 5 years and hence full amount of expenditure is not shown in the current year rather it is spread over the years. Examples of deferred revenue expenditure are advertisement costs incurred, training expenses for employees of the company. Accounting treatment for deferred revenue expenditure would be as follows –
In profit and loss account the firm will show only part of deferred revenue expenditure every year while remaining balance is shown as asset in the balance sheet and every year the company will transfer a fixed amount to profit and loss account until it reaches zero in the balance sheet.