Deferred Revenue Expenditure

4. Deferred Revenue Expenditure

Deferred Revenue Expenditure sits between Capital and Revenue Expenditure: it is, by nature, a Revenue Expenditure (it does not create or improve any fixed asset), but it is of an unusually large amount, and its benefit is expected to be enjoyed over more than one accounting year — not just the year it was paid.

Typical example: a heavy, one-time advertisement campaign to launch a new product, whose benefit (increased sales) is expected to continue for the next 3-4 years, not just the current year.

Accounting treatment: rather than charging the ENTIRE amount to the current year's Profit and Loss Account (which would understate the current year's profit and give no benefit-matching to the following years that also gain from it), the expenditure is spread — written off in equal (or otherwise reasonable) instalments over the years expected to benefit from it. In the year the expenditure is incurred:

• The instalment written off THIS year is debited to the Profit and Loss Account.
• The UN-written-off balance (the remaining instalments) is shown on the assets side of the Balance Sheet, usually under "Miscellaneous Expenditure (to the extent not written off)."