The Other Assets and Deferred Costs Topic includes the following Subtopics:
- a
Overall
- b
- c
Insurance Contracts That Do Not Transfer Insurance Risk.
- d
The Overall Subtopic addresses the accounting and reporting for certain deferred costs and prepaid expenses. The guidance in this Subtopic is limited to a discussion of the nature of prepaid expenses and preproduction costs related to long-term supply arrangements. The specific guidance for many other costs that have been deferred is included in various other financial, broad, and industry Topics. References to certain, but not all, of the guidance in other Topics are included in this Subtopic.
The following provides background regarding certain items included in this Subtopic.
Prepaid expenses are a category of assets that are typically used up or expire within the normal operating cycle of an entity. The term derives from the fact that they are paid in advance of their use or consumption.
Manufacturers often incur preproduction costs related to products they will supply to their customers under long-term supply arrangements. For example, the manufacturer may incur costs to perform certain services related to the design and development of the products it will sell under long-term supply arrangements and may incur costs to design and develop molds, dies, and other tools that will be used in producing those products. While practice varies from industry to industry, the supplier may be contractually guaranteed reimbursement of design and development costs, implicitly guaranteed reimbursement of design and development costs through the pricing of the product or other means, or not guaranteed reimbursement of the design and development costs incurred under the long-term supply arrangement.