Deferred revenue, another name for unearned revenue, is revenue whose entry onto the income statement is delayed ...Deposits and prepayments are forms of deferred revenue. The operating section of the cash-flow statement captures changes in deferred revenue...TREATMENT_____________When your company receives a customer deposit, the net income shown at the top of the operating section does not reflect this deferred revenue. Therefore, you record this deferred revenue as a cash inflow in the operating section. Specifically, you adjust cash generated from operating activities upward by the amount of the deferred revenue. When your company provides the service, the net income shown at the top of the operating section now includes the earned revenue. However, it did not obtain actual cash for this revenue in this period. Therefore, you must adjust the operating cash flow downward by the amount of this earned revenue.Hope u've understood...

Deferred Revenue Expenditure

Deferred revenue expenditure refers to those expenses that are incurred in the current accounting period but provide benefits over multiple accounting periods. These expenses are treated as an asset and are deferred to future periods rather than being immediately charged to the profit and loss account.

Flow of Deferred Revenue Expenditure

When a deferred revenue expenditure is charged to profit, there is no actual flow of cash or funds. It is merely an accounting entry that recognizes the expense in the profit and loss account. The flow of deferred revenue expenditure can be understood in the following steps:

1. Recognition of Deferred Revenue Expenditure: Initially, the expenditure is recognized as an asset on the balance sheet instead of being expensed out immediately. This is done because the expenditure is expected to provide future benefits.

2. Charging to Profit: At a certain point in time, the deferred revenue expenditure is charged to the profit and loss account. This could be done in a single accounting period or spread over multiple periods, depending on the accounting policies and the expected benefits of the expenditure.

3. No Cash Flow: When the deferred revenue expenditure is charged to profit, there is no actual cash outflow or inflow. It is a non-cash transaction that reflects the recognition of the expense and its impact on the financial statements.

4. Impact on Profit: Charging the deferred revenue expenditure to profit reduces the profit for the accounting period in which it is recognized. This reduction in profit is due to the allocation of the expense over multiple periods.

5. Matching Principle: The recognition and charging of deferred revenue expenditure to profit is in line with the matching principle of accounting. It ensures that expenses are recognized in the same period as the revenues they help generate, providing a more accurate representation of the financial performance.

6. Future Benefits: Despite being charged to profit, the benefits of deferred revenue expenditure are spread over multiple periods. These benefits could include increased efficiency, improved productivity, or enhanced market position, which are expected to generate future revenues.

7. Amortization: The deferred revenue expenditure is gradually written off over its useful life through a process called amortization. This ensures that the expense is allocated proportionately to the periods in which the benefits are realized.

Conclusion

In summary, when a deferred revenue expenditure is charged to profit, there is no actual flow of cash or funds. It is an accounting entry that recognizes the expense and reduces the profit for the accounting period. The flow of deferred revenue expenditure is reflected in the recognition as an asset, the eventual charging to profit, and the allocation of the expense over multiple periods to match the benefits it provides.