Deferred debit definition

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What is a Deferred Debit?

A deferred debit is an expenditure that has not yet been consumed, so it is temporarily classified as an asset. Once the expenditure has been consumed, it is charged to expense. In many cases, these deferred debits are charged to expense in the following reporting period.

Presentation of Deferred Debits

Deferred debits are usually classified within the prepaid expenses account, which appears as a current asset on the balance sheet. Only in rare cases are these deferred expenditures going to be consumed so far in the future that they are classified as long-term assets on the balance sheet.

Examples of Deferred Debits

Here are several examples of expenditures that may be classified as deferred debits:

  • Prepaid insurance. A business pays up-front for insurance that provides coverage for a number of reporting periods, and then charges a fraction of it to expense as the insurance periods occur.

  • Prepaid rent. A business pays rent for several months in advance, and then gradually charges this amount to expense over the usage periods.

  • Equipment maintenance contract. A business purchases an annual equipment maintenance contract in advance, and then charges it to expense over the usage period.

  • Subscription. A business pays for a subscription up front, and then charges it to expense over the course of the subscription period.

  • Software license fee. A business pays for an annual software license, and then charges it to expense over the usage period.

Similar Terms

A deferred debit is also known as a prepaid expense.