Advanced English Dialogue for Business – Deferred charges

Listen to a Business English Dialogue About Deferred charges

Eliana: Hi Howard, have you heard about deferred charges? They’re costs that are incurred but not immediately expensed on the income statement.

Howard: Oh, I see. Can you give me an example of deferred charges?

Eliana: Sure, one common example is prepaid expenses, like when a company pays for insurance or rent in advance.

Howard: So, these costs are recorded as assets and then gradually expensed over time?

Eliana: Exactly! The expenses are allocated to the income statement in future periods as the benefit of the prepaid expense is realized.

Howard: Are there any other types of deferred charges besides prepaid expenses?

Eliana: Yes, another example is deferred financing costs, which are costs associated with obtaining financing that are amortized over the term of the loan.

Howard: Ah, I see. So, deferred charges help to match expenses with the revenues they generate?

Eliana: That’s correct! They ensure that expenses are recognized in the periods when they contribute to earning revenue.

Howard: Do deferred charges have any impact on a company’s financial statements?

Eliana: Yes, they affect both the income statement and the balance sheet. They reduce reported expenses on the income statement and increase assets on the balance sheet.

Howard: Thanks for explaining, Eliana. Deferred charges seem like an important concept for understanding a company’s financial health.

Eliana: You’re welcome, Howard. They play a significant role in financial reporting and analysis.