Debitoor Dictionary

Accounting terms explained in a simple way

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Deferred expenditure - What is a deferred expenditure?

Definition: Deferred expenditure is a cost to the company that has invariably been paid but doesn’t impact on the company’s profit/loss accounts in the month it was paid but further into the financial year or possibly the next depending on when it will be utilised.

Small companies may not reflect deferred expenditure in their accounts but larger corporate entities will have company accounting policies to deal with deferred expenditure or prepayments as by the very nature of the business and the size may have a big impact in the financial records of the company.

An example would be if your company were to purchase £4,000 of packing materials but only used £1,000 in the month they were purchased, by charging the full amount of £4,000 to your Profit/loss account in one month you would be distorting your figures so better to place the remaining amount on the balance sheet as deferred expenditure and charge an appropriate amount the following month.