Deferred Charge Definition
A prepaid expenditure that is considered an asset on the company's balance sheet until it becomes relevant to the business, for example until the prepaid service such as rent or lease is used. If a company leases a truck and pays the lease for 3 months in advance, this is a prepaid service.
The firm uses a portion of the funds paid from its deferred charges account each month and recognizes the monthly amount as an expense on its financial statements. This process ensures that revenues for a given period of time are matched with the expenses incurred for that period.