Definition of Deferred Asset
A deferred asset represents costs that have occurred, but because of certain circumstances the costs will be reported as expenses at a later time. You might consider a deferred asset to be a prepaid expense that does not qualify to be reported as a current asset.
A deferred asset might also be referred to as a deferred charge.
Example of a Deferred Asset
Assume that an electric utility spent $300,000 for a project before it had to be abandoned. The state regulators ruled that the utility may recover the $300,000 from its customers in the form of higher electricity rates over a 5-year period starting next year. Because of this assurance, the utility will record the $300,000 as a deferred asset.
In each of the five subsequent years, the utility will credit the deferred asset account for $60,000 and will debit an expense for $60,000. Hence, the utility’s $60,000 of increased expenses will be matched with the $60,000 of increased electricity revenues it will be reporting on its five annual income statements.
