Skip to content

Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions

Deferred Revenue Expenditure: Meaning, Examples and Treatment

Updated 10 October 2026 · Fact-checked

Deferred revenue expenditure is a revenue-natured expense whose benefit lasts over several years, so it is not charged fully in the year it is spent. The amount is shown as an asset on the Balance Sheet and written off to the Profit and Loss Account in equal parts over the benefit period.

Understand Deferred Revenue Expenditure

Most expenses give benefit within the year. Wages, rent and electricity are charged to the Profit and Loss Account of that year. These are revenue expenditure.

Some expenses are revenue in nature but the benefit runs over several years. A big advertising campaign to launch a new product is one example. Charging all of it to one year would make that year's profit look too low and later years too high.

So the expense is deferred. The unwritten-off part is carried forward and shown on the Balance Sheet as an asset, often under the heading Miscellaneous Expenditure. Each year a fixed portion is written off to the Profit and Loss Account. This follows the matching concept: cost is set against the income it helps earn.

Common examples are heavy advertising for a new product, preliminary expenses (costs of forming a company), and large expenses on a one-time shifting of a factory or on a major reorganisation. Note that deferred revenue expenditure is not a real asset. You cannot sell it. It is only the part of an expense not yet charged.

Do not confuse it with capital expenditure. Capital expenditure buys or improves a fixed asset or adds earning capacity, and the asset stays on the Balance Sheet (with depreciation). Deferred revenue expenditure is an expense by nature, and it is fully written off over a few years until the balance is nil.

Key formulas to remember

Annual write-off (equal instalments)
Annual write-off = Total deferred expenditure ÷ Number of years of benefit
Use when the question says to write off in equal instalments over a given period.
Balance carried forward
Balance in Balance Sheet = Total expenditure − Amount written off so far
This unwritten-off amount is shown as an asset (Miscellaneous Expenditure) until it becomes nil.
Journal entry at spending
Deferred Revenue Expenditure A/c Dr. To Cash/Bank A/c
The full amount is first debited to an asset-type account, not to the Profit and Loss Account.
Journal entry at write-off
Profit and Loss A/c Dr. To Deferred Revenue Expenditure A/c
Passed each year for the instalment being written off.

How to solve Deferred Revenue Expenditure questions

Use this method for any question on deferred revenue expenditure, whether it asks for classification, write-off or Balance Sheet figures.

  1. 1Check the nature: is it an expense (advertising, formation cost) or does it buy an asset? Expenses are revenue in nature.
  2. 2Check the benefit period: if the benefit lasts beyond one year and the amount is large, it is deferred revenue expenditure.
  3. 3Note the total amount spent and the number of years over which it is to be written off.
  4. 4Divide the total by the number of years to get the annual write-off, unless the question gives different instalments.
  5. 5Charge the annual write-off to the Profit and Loss Account of the year.
  6. 6Show the balance (total less amount written off) on the asset side of the Balance Sheet.
  7. 7Re-read the question to see which year's figure is asked: the P&L charge, the balance, or the total written off to date.

Quickest way: Three-number shortcut

When to use it: Use for numerical MCQs where the amount, period and year elapsed are given.

  1. Annual write-off = amount ÷ years.
  2. Written off so far = annual write-off × years elapsed.
  3. Balance = amount − written off so far.
  4. For classification MCQs, ask two questions: is it an expense, and does the benefit run over several years? If both are yes, pick deferred revenue expenditure.

Common mistakes in Deferred Revenue Expenditure

  • Treating deferred revenue expenditure as capital expenditure

    It appears on the Balance Sheet, so it looks like an asset.

    Fix: Remember it is an expense by nature. It does not create a fixed asset and is written off completely over time.

  • Charging the whole amount to the Profit and Loss Account in the first year

    Students treat every revenue item as a current-year expense.

    Fix: If the question says the benefit is spread over years, charge only one year's instalment.

  • Charging depreciation on it

    Both write-off and depreciation reduce a Balance Sheet figure over time.

    Fix: Depreciation applies to fixed assets. Deferred revenue expenditure is written off, not depreciated.

  • Showing the balance on the liabilities side

    Students forget it is a debit balance.

    Fix: The unwritten-off balance is a debit balance and goes on the asset side.

  • Treating small or routine advertising as deferred

    Students see the word advertising and assume it is always deferred.

    Fix: Only heavy, one-time advertising with benefit over several years is deferred. Normal advertising is ordinary revenue expenditure.

Worked examples

Example 1

A company spent ₹5,00,000 on a heavy advertising campaign to launch a new product. The benefit is expected to last 5 years. How much is charged to the Profit and Loss Account in the first year, and what balance is shown in the Balance Sheet at the end of year 1?

Show the solution
  1. The campaign is an expense with benefit over 5 years, so it is deferred revenue expenditure.
  2. Annual write-off = ₹5,00,000 ÷ 5 = ₹1,00,000.
  3. Balance at end of year 1 = ₹5,00,000 − ₹1,00,000 = ₹4,00,000.

Answer: ₹1,00,000 is charged to the Profit and Loss Account, and ₹4,00,000 is shown as an asset in the Balance Sheet.

Example 2

Preliminary expenses of ₹60,000 were incurred on forming a company and are written off equally over 3 years. What is the balance of preliminary expenses at the end of year 2?

Show the solution
  1. Annual write-off = ₹60,000 ÷ 3 = ₹20,000.
  2. Written off in 2 years = ₹20,000 × 2 = ₹40,000.
  3. Balance = ₹60,000 − ₹40,000 = ₹20,000.

Answer: ₹20,000 remains on the asset side of the Balance Sheet at the end of year 2.

Exam tips

  • Look for keywords: heavy advertising, preliminary expenses, benefit over several years. They point to deferred revenue expenditure.
  • In difference-type MCQs, remember: capital expenditure creates an asset that lasts; deferred revenue expenditure is an expense spread over years.
  • For numerical MCQs, check whether the question asks for the P&L charge, the balance, or the amount written off so far.
  • There is no negative marking, so always attempt every question. Eliminate options that put the balance on the liabilities side.

Practice questions from Capital and Revenue Transactions

Deferred Revenue Expenditure in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Deferred Revenue Expenditure: frequently asked questions

What is deferred revenue expenditure with examples?

It is revenue expenditure whose benefit extends over more than one year, so it is written off over several years. Examples are heavy advertising for a new product and preliminary expenses of forming a company.

How is deferred revenue expenditure treated in final accounts?

A part is charged to the Profit and Loss Account each year as an expense. The balance not yet written off is shown on the asset side of the Balance Sheet until it becomes nil.

What is the difference between deferred revenue expenditure and capital expenditure?

Capital expenditure acquires or improves a fixed asset and stays on the Balance Sheet, with depreciation. Deferred revenue expenditure is an expense by nature, with benefit over several years, and is fully written off over time.

Is deferred revenue expenditure an asset?

It is shown as an asset on the Balance Sheet only because part of the expense is carried forward. It has no resale value and is not a real asset.