deferred maintenance

Examples of deferred maintenance in the following topics:

• Valuing Repairs, Maintenance, and Additions

  • Deferred maintenance is the practice of postponing maintenance activities such as repairs on both real property (i.e. infrastructure) and personal property (i.e. machinery) in order to save costs, meet budget-funding levels, or realign available budget monies.
  • Generally, a policy of continued deferred maintenance may result in higher costs, asset failure, and in some cases, health and safety implications.
  • Therefore, asset repairs and maintenance are expensed on the income statement at the market value paid for the services rendered.
  • Cars require regular maintenance.

• Other Current Liabilities: Sales Tax, Income Tax, Payroll, and Customer Advances

  • If the book-tax difference is carried over more than a year, it is referred to as a deferred tax.
  • Future assets and liabilities created by a deferred tax are reported on the balance sheet.
  • An example of a typical customer advance is the receipt of an annual maintenance contract fee, where the entire contract is paid up front.
  • The receipt of $12,000 for the annual maintenance contract is initially recorded as deferred revenue.
  • As the maintenance service is rendered and a portion of the fee is earned, $1,000 is recognized periodically each month as revenue and the deferred revenue account is reduced.

• Unearned and Deferred Revenues

  • Examples of deferred items include annuities, charges, taxes, income, etc.
  • If the deferred item relates to revenue (cash has been received), it is carried as a liability.
  • An example of a deferred revenue is the monies received for a 12-month magazine subscription.
  • A deferred revenue item involves cash received before the earnings process is complete.
  • Explain the purpose of classifying transactions as either deferred or unearned revenue

• Differences Between Accrued and Deferred Expenses

  • Accrued and deferred expenses represent the two possibilities that can occur due to timing differences under the matching principle.
  • A deferred expense is an asset that represents a prepayment of future expenses that have not yet been incurred.
  • Deferred expense is generally associated with service contracts that require payment in advance.
  • So the business will record a $12,000 deferred expense asset.
  • Accrued and deferred expenses are both listed on a company's balance sheet.

• Overview of Income Tax Accounting

  • In this method, the deferred income tax amount is based on tax rates in effect when the temporary differences originated.
  • The deferred method is an income-statement-oriented approach.
  • In the asset-liability method, deferred income tax amount is based on the expected tax rates for the periods in which the temporary differences reverse.
  • Summarize how to account for deferred taxes under the deferred method and the asset-liability method

• Importance of Recognition and Measurement

  • Deferred expense (prepaid expense) allows matching costs of products paid out to those not received yet.
  • Accrued expenses shares characteristics with deferred revenue.
  • Deferred expenses, or prepaid expenses or prepayment, are an asset.
  • Deferred expenses share characteristics with accrued revenue.
  • Prepaid expenses, such as employee wages or subcontractor fees paid out or promised, are not recognized as expenses (cost of goods sold), but as assets (deferred expenses), until the actual products are sold.

• Recognition of Revenue After Delivery

  • When a sale of goods transaction carries a high degree of uncertainty regarding collectibility, a company must defer the recognition of revenue.
  • The unearned income is deferred (recorded as a liability) and then recognized to income when cash is collected.
  • The seller records the cash deposit as a deferred revenue, which is reported as a liability on the balance sheet until the revenue is earned.
  • A deferral is recorded when a seller receives a subscriber's payment on the subscription; cash is debited and deferred magazine subscriptions (a liability account) is credited.
  • As the delivery of the magazines take place, a portion of revenue is recognized, and the deferred liability account is reduced for the amount of the revenue.

• Defining Liabilities

  • Liabilities can also include deferred revenue accounts for monies received that may not be earned until a future accounting period.
  • An example of a deferred revenue account is an annual software license fee received on January 1 and earned over the course of a year.
  • For the current fiscal year, the company will earn 5/12 of the fee and the remaining amount (7/12) stays in a deferred revenue account until it is earned in the next accounting period.

• The Importance of Aggregate Decisions about Consumption versus Saving and Investment

  • Money can either be consumed, invested, or saved (deferred consumption or investment).
  • Savings is essentially deferred consumption or investment; it is intended for use in the future.

• The Definition of Money

  • It is a standard of relative worth and deferred payment, and as such is a necessary prerequisite for the formulation of commercial agreements that involve debt.
  • Economists sometimes note additional functions of money, such as that of a standard of deferred payment and that of a measure of value.
  • A "standard of deferred payment" is an acceptable way to settle a debt--a unit in which debts are denominated.