The deferred liability corresponds to the obligations that a company has for income received in advance to provide a service or make a sale in the future.
Deferred liabilities have that name because income is deferred or spread over several periods. Thus, they are accounted for during the year to be amortized, that is, when the product has actually been delivered or the service has been rendered.
Elements of deferred liabilities
The deferred liability elements are:
- Income received in advance: Includes income received in advance such as interest, commissions, leases, fees, technical services, transport, freight and transportation, goods in transit already sold, registration and pensions, administration fees, others.
It is worth mentioning that in the event of not being able to provide the service or deliver the goods, the company must maintain available resources for a possible return.
- Deferredpayments: Registers the amount owed for the adjustments made to the outstanding net installments, in the proportion that varies the price of the awarded property. It is for the exclusive use of commercial consortium management companies.
- Installment sales: Under certain conditions, companies that make installment sales may account the profit on sales as deferred gross profit. Thus, only when they recover the portfolio that is the object of the sale, can they make the proportional part of the gross profit in the period’s profit.
- Credit for monetary correction: Registers the adjustments for inflation that are made in accordance with current regulations.
- Deferred taxes: Register the tax payable according to current regulations.
Example of deferred liability
Suppose a commercial space is leased and the landlord (the owner) requires his tenant to pay 1 year in advance. When the lessee pays, the money is an income that does not fully belong to the lessor since a year has not elapsed, that is, the service has not been fully provided. In addition, there may be a possibility that the relationship ends before the year and the landlord has to return part of the money to the tenant .