Deferred Long Term Asset Charges
These are expenses which the company has paid for but not yet subtracted from the assets. They are very similar to Prepaid Expenses (where rent would be counted as an asset until it came due each month, then would be subtracted from the balance sheet). In fact, Prepaid Expenses are type of deferred charge. The difference is, when companies prepay rent or some other expense, they have a legal right to collect the service. Deferred Long Term Asset Charges have no legal rights attached to them.For example, if a company prepaid rent on a storage building, and then spent $30,000 moving all of their equipment into it, they could set the $30,000 up on the balance sheet as a deferred charge. This way, they wouldn't be forced to take a hit by reducing their earnings $30,000 the same month they paid for the relocation costs. They could then write this amount down over time.
These charges are intangible and should be given very little weight when analyzing a balance sheet.
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This page is part of Investing Lesson 3 - Understanding the Balance Sheet. To go back to the beginning, see the Table of Contents. If you have already read this lesson, you can skip directly to the Balance Sheet Quiz.
