Did you know that when a natural or legal person receives certain income in advance for the provision of a future service, they are obliged to issue deferred liabilities? Indeed, the concept of deferred liability is quite common in installment sales in the business context or in advance payments between lessors and lessees. All the information about this key term in accounting, then.
What are deferred liabilities for?
The role of deferred liabilities is to understand the obligations that a company has with respect to the income it has received in advance. Probably the most illustrative example to explain the definition of a deferred liability is the prepayment of a rent.
Suppose I want to rent an apartment and the landlord asks me for a two-month deposit. In order to rent the house I will have to pay those two months of deposit in advance, but this money will not be 100% owned by the landlord either. In fact, if I decide to leave early and I have not caused any damage to the house, the landlord will have to return the amount of the deposit. Thus, in the eyes of the landlord, the advance payment of a bail it will be a deferred liability.
Examples of deferred liabilities
Now that we have understood the meaning of deferred liability, we are going to explain the most representative examples of the concept:
- Provided that a natural or legal person has received in advance a commission, a surety, a fee, a pension or a banking interés(to give a few examples) will be obliged to issue a deferred liability for this income received in advance.
- When a person subscribes for a year to a publication or magazine, even if the company receives the full subscription money, it will be obliged to send said publication monthly or quarterly.
- When the tax payable is registered according to current regulations regarding taxes.