DEFERRED ASSETS, also known as deferred charges to expense, and prepaid expenses, are items of expense which have been paid or for which liability has been assumed, but which are not properly chargeable to the current accounting period. The charging of such items to current operating costs is deferred until the period arrives to which they are applicable. The premium, for example, on an insurance policy may be paid one year in ad vance. Obviously, the entire premium is not applicable to the month in which payment is made or obligation assumed but to the 12 months. Thus at the end of an accounting period, only that part of the cost applicable thereto would be charged to ex pense ; the remainder is a deferred asset.
In addition to unexpired insurance, the other common deferred assets are advertising paid in advance, development expense, mov ing expense and organization expense. With such items as insur ance and advertising, the problem of pro-rating costs is relatively simple ; with such items as development, moving and organization expenses, the problem becomes more involved. Organization ex pense, theoretically, extends over the entire life of the enterprise to which it applies. Since there is no way of knowing in advance how long a concern will remain in business, some arbitrary basis must be selected for writing off the organization expense. Some organizations spread the cost over a five year period, others over a ten year period or even longer. Conservative accounting prac tice suggests the desirability of writing off such expense as rapidly as the profits of a business will permit.