Journal Entry Deferred Revenue Expenditure in Accounting

Journal Entry Deferred Revenue Expenditure

Journal Entry Deferred Revenue Expenditure

Deferred Revenue expenditure is that expenditure which is revenue in nature but the benefits of those are derived over a number of years. The benefits of such expenditure last generally for a period of 3 to 7 years.

Deferred revenue expenditure is not completely debited to to Profit and Loss Accounts  but part of it is shown in Profit and Loss Accounts . The deferred revenue expenditure is spread over the number of years for which the benefits is likely to last. Thus, only a part of such expenditure is taken to Profit and Loss accounts every year the unwritten-off portion is allowed to stand on the assets side of the balance sheet.

 Example :

A firm spent a huge amount of Rs 200000 on Advertisement to introduce a new product in the market and it is estimated that its benefits will last for 4 years. In such a case, Rs 50,000 will be charged in the profit and loss accounts of each year for four consecutive years.

Entry will be

Profit and loss accounts A/c

50,000

   To Advertisement A/c

   50,000

Being advertisement adjusted in Profit and loss accounts

Accounting Treatment Rs 50,000 will be shown in the debit side of profit and loss accounts as the expense of Advertisement and remaining Value of Advertisement which is Rs .150,000 is shown in the Asset side of the balance sheet which will be deducted every consecutive year by Rs 50000 in profit and loss accounts and in 1 year its will be Rs 100000 in Asset and Rs 50000 in Profit and Loss accounts similarly in 2 year

Rs 50000 in assets and Rs 50,000 in Profit and Loss accounts.

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