In our daily life and work, we often encounter some expenses that need to be paid for a long time, such as rent, advertising fees, research and development fees, etc. These expenses are allocated to each accounting period in a certain period to reflect their actual expenditures. This method of allocating long-term expenses to each accounting period is long-term deferred expenses.
Prepaid expenses refer to expenses that have occurred but have not been included in the current profits and losses, usually caused by one-time payment or long-term payment. For example, when an enterprise purchases equipment, it may need to pay a large sum of money at one time, which belongs to prepaid expenses. Long-term prepaid expenses are the process of allocating these prepaid expenses to various accounting periods according to a certain period.
According to international accounting standards IAS and domestic accounting standards, enterprises need to make long-term expectations for some one-time large expenditures. This will enable enterprises to meet the requirements of accounting standards when preparing financial statements and improve the quality of financial statements.
The amortization method of long-term deferred expenses is as follows:
1. Distribute the prepaid expenses to each accounting period evenly at a fixed time interval. This method is simple and clear, but it may lead to a large amount of depreciation or amortization in the later period, affecting the current profit and loss.
2. At the end of each accounting period, deduct the amortized part from the prepaid expenses, and then continue to distribute the remaining amount at regular intervals. This method can reduce the amount of depreciation or amortization in the previous period, which is conducive to adjusting the current profit and loss.
3. Calculate an average life according to the total amount of prepaid expenses and the expected service life, and then multiply this average life by the annual prepaid expenses to get the annual prepaid amount. This method is suitable for the situation that the service life of prepaid expenses is relatively fixed.
4. Calculate the amount to be amortized each year according to the actual interest rate of the expenses to be amortized (that is, the time value of funds). This method considers the time value of funds and can better reflect the actual expenditure of prepaid expenses.