What is the difference between deferred revenue expenditure and prepai...
The difference between deferred revenue expenditure and prepaid expenses is estimation of amount is correct because the amounts of both the terms are not written equal. the prepaid expenses is double than deffered so, deffered means expenses which have occurred in future means - future payments of an company. whereas on other side prepaid expenses are the expenses which are paid in advance means double than deffered payment expenditure.
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What is the difference between deferred revenue expenditure and prepai...
Definition of Deferred Revenue Expenditure:
Deferred revenue expenditure refers to an expense that is incurred in the current period but its benefits are derived over multiple accounting periods. It is treated as an asset and is amortized over its useful life.
Definition of Prepaid Expenses:
Prepaid expenses are expenses that are paid in advance but their benefits are yet to be received. They are initially recorded as assets and are gradually recognized as expenses over the period in which the benefits are received.
Difference between Deferred Revenue Expenditure and Prepaid Expenses:
Accounting Treatment:
- Deferred Revenue Expenditure: It is recorded as an asset on the balance sheet and is amortized over its useful life. The amortized amount is recognized as an expense in the income statement over the respective accounting periods.
- Prepaid Expenses: They are also recorded as assets on the balance sheet but are gradually recognized as expenses in the income statement as the benefits are received.
Estimation of Amount:
- Deferred Revenue Expenditure: The amount of deferred revenue expenditure is estimated based on the expected benefits to be derived in future accounting periods.
- Prepaid Expenses: The amount of prepaid expenses is based on the actual payment made in advance for future benefits.
Benefit for more than one accounting period:
- Deferred Revenue Expenditure: The benefits of deferred revenue expenditure are spread over multiple accounting periods.
- Prepaid Expenses: The benefits of prepaid expenses are also spread over multiple accounting periods.
Nature of Expenditure:
- Deferred Revenue Expenditure: This type of expenditure is incurred to create or enhance intangible assets or rights, which result in long-term benefits.
- Prepaid Expenses: Prepaid expenses are incurred for various regular expenses such as rent, insurance, subscriptions, etc., which provide benefits in the future.
In conclusion, the main difference between deferred revenue expenditure and prepaid expenses lies in the accounting treatment and the nature of the expenditure. Deferred revenue expenditure is treated as an asset and amortized over its useful life, while prepaid expenses are recognized as assets initially and gradually recognized as expenses. The estimation of amount, as well as the benefit over multiple accounting periods, are common to both types of expenditures.
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