Deferred Expenses

Deferred Expenses

• When expenses are paid before being used an asset account is created Example: Supplies, prepayments
• If some or all of the expense has been used by the end of the fiscal year
• Decrease asset by the amount used
• Increase expense by the amount used

Contra-Assets

• Account classified with assets but is a natural credit (also called a negative asset)
• When a contra-asset increases, total assets decrease
• Always related to a primary account
• Allowance for Doubtful Accounts is related to Accounts Receivable
• Accumulated Depreciation is related to Property, Plant & Equipment

Example: Deferred Expenses

1. On July 1, 2020 $12,000 was paid in advance for 12 months of rent beginning on that date.

1. An analysis of the company's supplies inventory indicates that supplies on hand on December 31st totalled $5,000. The supplies balance at the beginning of the year was $6,000 and $32,000 of supplies were purchased throughout the year.

1. The company's buildings originally cost $500,000 with a residual value of $50,000 and useful life of 10 years.

1. The company determined that $10,000 of new receivables had become doubtful during 2020