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What is the difference between deferred revenue expenditure and prepaid expenses?
- a)Accounting treatment
- b)Estimation of amount
- c)Benefit for more than one accounting period
- d)Nature of expenditure
Correct answer is option 'B'. Can you explain this answer?
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What is the difference between deferred revenue expenditure and prepai...
This deferred expense will be reported on the balance sheet as a noncurrent or long-term asset. Often the term prepaid expense indicates that a payment was made less than one year before the cost is expensed. This prepaid expense is reported as a current asset.
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What is the difference between deferred revenue expenditure and prepai...
Difference between deferred revenue expenditure and prepaid expenses:
Estimation of amount
Deferred revenue expenditure refers to an expenditure incurred during a particular accounting period, but its benefits are likely to be derived over several future accounting periods. Prepaid expenses, on the other hand, refer to expenses that have been paid in advance but are yet to be incurred.
Accounting treatment
Deferred revenue expenditure is treated as an asset in the balance sheet and is amortized over its useful life. Prepaid expenses, on the other hand, are also treated as assets in the balance sheet and are gradually expensed over the period to which they relate.
Benefit for more than one accounting period
The main difference between deferred revenue expenditure and prepaid expenses is that deferred revenue expenditure benefits more than one accounting period, while prepaid expenses benefit only one accounting period.
Nature of expenditure
Deferred revenue expenditure is incurred to create an intangible asset or to increase the earning capacity of the business. Prepaid expenses, on the other hand, are expenses that have been paid in advance, such as rent, insurance, and subscriptions.
Conclusion
In conclusion, the main difference between deferred revenue expenditure and prepaid expenses is that deferred revenue expenditure benefits more than one accounting period, is treated as an asset in the balance sheet, and is incurred to create an intangible asset or to increase the earning capacity of the business. Prepaid expenses benefit only one accounting period, are also treated as assets in the balance sheet, and are expenses that have been paid in advance.
Estimation of amount
Deferred revenue expenditure refers to an expenditure incurred during a particular accounting period, but its benefits are likely to be derived over several future accounting periods. Prepaid expenses, on the other hand, refer to expenses that have been paid in advance but are yet to be incurred.
Accounting treatment
Deferred revenue expenditure is treated as an asset in the balance sheet and is amortized over its useful life. Prepaid expenses, on the other hand, are also treated as assets in the balance sheet and are gradually expensed over the period to which they relate.
Benefit for more than one accounting period
The main difference between deferred revenue expenditure and prepaid expenses is that deferred revenue expenditure benefits more than one accounting period, while prepaid expenses benefit only one accounting period.
Nature of expenditure
Deferred revenue expenditure is incurred to create an intangible asset or to increase the earning capacity of the business. Prepaid expenses, on the other hand, are expenses that have been paid in advance, such as rent, insurance, and subscriptions.
Conclusion
In conclusion, the main difference between deferred revenue expenditure and prepaid expenses is that deferred revenue expenditure benefits more than one accounting period, is treated as an asset in the balance sheet, and is incurred to create an intangible asset or to increase the earning capacity of the business. Prepaid expenses benefit only one accounting period, are also treated as assets in the balance sheet, and are expenses that have been paid in advance.
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What is the difference between deferred revenue expenditure and prepai...
There is only small difference between the deferred revenue expenditure and prepaid expenses the benefits available from prepaid expenses can be precisely estimated but that is not possible in the case of deferred revenue expense that means we cannot estimate the value of benefit we get from a deferred revenue expenditure hence option B is the correct answer
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What is the difference between deferred revenue expenditure and prepaid expenses?a)Accounting treatmentb)Estimation of amountc)Benefit for more than one accounting periodd)Nature of expenditureCorrect answer is option 'B'. Can you explain this answer?
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