1160
Prepaid Expenses
ASC 340: Other Assets and Deferred Costs
📖 Overview
ASC 340 provides guidance on deferred costs and other assets not covered by other topics. It covers prepaid expenses, deferred advertising costs, deferred financing costs (now generally netted against debt), and deferred contract costs.
🎯 Scope
Applies to prepaid expenses (rent, insurance, subscriptions), deferred advertising costs (direct-response), deferred financing costs (issued debt), deferred contract costs (incremental costs of obtaining a contract under ASC 606).
⚙️ Key Principles
1. Deferred costs are recognized as assets if they provide future economic benefits.
2. Prepaid expenses are expensed over the period benefited.
3. Direct-response advertising costs are deferred if future benefits are probable and measurable.
4. Deferred financing costs are presented as a deduction from debt liability (contra-liability).
✅ Recognition
Recognized as an asset when cash is paid or cost is incurred, and future benefit is probable. Expense recognized as the benefit is consumed (amortization).
📏 Measurement
Measured at cost (amount paid or incurred). Amortized systematically over the period expected to be benefited (straight-line most common). Deferred financing costs measured as issuance costs directly associated with debt.
📊 Presentation
Prepaid expenses presented as current assets. Deferred advertising costs presented as current or non-current based on benefit period. Deferred financing costs netted against debt liability.
📝 Disclosure Requirements
Disclose nature and amount of deferred costs, amortization method, remaining amortization period, and any impairment or write-offs.
🔗 Related Standards
ASC 606 (Revenue), ASC 835 (Interest), ASC 350 (Intangibles)
📁 Related Accounts in the Chart of Accounts
Explore accounts commonly associated with this accounting standard.