Tereshchenko K.S., Moiseieva F.A.

Donetsk National University of Economics and Trade named after Mykhaylo Tugan-Baranovsky

Genesis of Accounting Thought about Economic

Essence of Deferred Income and Expenses

Calculation of finance result is one of the main tasks of accounting. It is necessary to determine compliance of income accrued in current period and expenses incurred to obtain this income. Indeed some expenses bring economic benefits in current month and are deducted from revenues during finance result calculation. Other expenses the entity has incurred in current month are to bring income in the future accounting periods. As a rule they are considered as deferred expenses because they relate to future accounting periods. The main accounting problem is to divide continuous flow of expenses to portions and to compare them with incomes of appropriate reporting periods.

Deferred expenses have become the subject of research for E.G. Melnick, V.M. Saprykin, F.F. Butynets, Y.V. Sokolov etc. However, problems connected with genesis of accounting thought about deferred income and expenses remained without attention. Therefore this point requires further examination.

The purpose of this article is to study changes in economic essence of deferred income and expenses in historical retrospect and to analyze the different scientists’ opinions considering interpretation of mentioned categories on the various stages of economic science development for the further improvement of accounting methods.

Every accounting category has own evolution of the approaches to its essence understanding. On the basis of detailed analysis of various approaches of P. Lassyecom, D.B. Sterninson, Y.V. Sokolov three stages of accounting thought regarding deferred income and expenses substance were separated.

First stage includes inventorial natural accounting in which records are kept in natural measures. There are no references on deferred income and expenses. This period continued from accounting initiation to V cent. b.c.

Second stage was inventorial monetary. Its appearance is connected with money development. At that time cameral and commercial (patrimonial) bookkeeping emerged. The first one deals with cash receipt and cash disbursements, the second one is devoted to accounting of property and its usage. Accounting of the disbursements in cameral bookkeeping is kept on the cash basis. Conversely accrual basis is used in patrimonial bookkeeping. The main disadvantage of cameral bookkeeping is due to all property complexes except money are not considered in accounting system. [2, с. 23]

Existence of deferred income and expenses categories is due to application of accrual basis and matching concept. The first scientist emphasized on the difference between the moments of liability accrual and its repayment was L. Flory. He defined that expenses are not cash disbursements but the liability to pay, e.g. not the finance resources flow, but the right of ownership transfer forms the basis of accounting. [2, с. 73]

Further genesis of deferred income and expenses economic essence is connected with appearance and development of reporting theories in XIX-XX cc. (static and dynamic theories).

German lawyer G.V. Simon published monographs on the balance justice which was recognized as a key document for static balance theory (1861). G.V. Simon points on the necessity to disclose in the balance-sheet revenues and expenses that relate for future reporting periods. Therefore scientist considered that the cost of the entity doesn’t defined by the simple adding of property objects and liabilities deduction. Balance has to be dynamized by the way of deferred income and expenses disclosure. Further development of the theory somewhat changed the views on the deferred expenses substance. Scientist of the theory defined asset as a property, funds, but in case of deferred expenses appearance there is no property because the question is about withdrawn resources.

Deferred income and expenses categories found their crucial meaning in dynamic theory of E. Shmalenbakh, E. Kosiol, I. Nikolaeyv. Per dynamic balance theory assets is considered not as funds but as expenses that move to costs and liabilities are defined as incomes to be assets in future. The results of the reporting theories examination are presents in Table 1.

Table 1 – Essence of deferred income and expenses in the static and dynamic financial reporting theories

№	Accounting objects	Balance
		Static	Dynamic
1.	Deferred income	Additional account to Profit/Loss Control Account	Receipts but not income yet
2.	Deferred expenses	Withdrawn funds	Expenses but not costs yet

The third stage of accounting thought development is connected with accounting standardization (1960^th). In 1973 International Accounting standard Board was founded for the purposes of accounting procedures unification and International Accounting Standards (IAS) development.

As a result of our examination of IAS there is no separate standard that would define accounting methods for deferred income and expenses. Accrual basis is the fundamental principle for division of continuous revenues and expenses flows (IAS 1 “Presentation of Financial Statement”). Deferred income together with current period revenues are described in IAS 18 “Revenue” [1].

As a result of our research the following conclusions should be made:

- appearance of deferred income and expenses categories is a result of application of accrual basis and income and expenses matching concept;

- role of this categories is increasing in dynamic financial reporting theory which is focused on the accuracy of the entity’s finance result measurement.

References

1. Міжнародний стандарт бухгалтерського обліку 18 «Дохід» (IAS 18 «Revenue») // Режим доступу: <http://www.minfin.gov.ua/file /link/320291/file/IAS%2018.pdf>.

2. Соколов Я.В. Бухгалтерский учёт: от истоков до наших дней: учебн. пособие для вузов / Я.В.Соколов. – М.: Аудит, ЮНИТИ, 1996. – 638 с.