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What is a deferred asset?

Author:
Harold Averkamp, CPA, MBA

Definition of Deferred Asset

A deferred asset represents costs that have occurred, but because of certain circumstances the costs will be reported as expenses at a later time. You might consider a deferred asset to be a current asset.

A deferred asset might also be referred to as a deferred charge.

Example of a Deferred Asset

Assume that an electric utility spent $300,000 for a project before it had to be abandoned. The state regulators ruled that the utility may recover the $300,000 from its customers in the form of higher electricity rates over a 5-year period starting next year. Because of this assurance, the utility will record the $300,000 as a deferred asset.

In each of the five subsequent years, the utility will credit the deferred asset account for $60,000 and will debit an expense for $60,000. Hence, the utility’s $60,000 of increased expenses will be matched with the $60,000 of increased electricity revenues it will be reporting on its five annual income statements.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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