A deferred expense is a cost that has been incurred but not yet recognized as an expense in the financial statements. Instead, it is recorded as an asset on the balance sheet until the expense is recognized in the period in which it will be used or consumed.
For example, if a company pays for a year of insurance upfront, the payment is initially recorded as a deferred expense. Each month, a portion of that payment is then recognized as an expense, reducing the deferred expense asset and reflecting the cost in the income statement.
Deferred expenses help align costs with the revenue they help generate, following the matching principle in accounting.
To create a deferred expense document
Step 1-Enable the setting
Go to Administration > General settings > Enable Deferred expense
Step 2: Create Invoice Received
Fill all the required details in the main tab, company, entity
Add Expense: Include the expense you want to allocate over the months or period.
Add Expense Item: Click on the Create/Cancel Deferral option.
Fill in Deferred Expense Dialog:
- Deferred From/To: Specify the period for deferring the expense.
- Calculation Type: Choose how to calculate the deferral (monthly, calendar days, or manually).
- GL Account: Select the deferred expense account.
- Expense GL Account: Choose the account to transfer the balance to the profit and loss statement at the end of the month.
- Expense Item: Select the relevant expense item.
The below icon, help you identify if these expense are being for the period or not.
Please note, these deferred expense will not be included to the cost of Invnetory.
- To work Automatically with deferred expenses- Do the month end closing and check the expense values calculated in the deferred expense report from Accounting Module.
I have closed the August and September months therefore the recognized expenses are AED 5000 (10,000/4*2)
You can view this data in the report as well
- Manual Deferred expense-
To create the calculations manually, Click on expense
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