Deferrals

Deferral is the act of postponing or delaying an action, decision, or event to a future time. It can be intentional, required by policy or agreements, or the result of practical constraints. In accounting and finance, deferrals involve recognizing revenue or expenses in a period different from when cash changes hands, creating assets or liabilities on the balance sheet.

Deferred revenue arises when a company receives payment before delivering goods or services; the corresponding liability is called unearned revenue, and revenue is recognized when performance occurs. Deferred expenses, or prepaid expenses, arise when payment is made before the benefit is received; these are recorded as assets and expensed as the benefit is consumed.

Tax-deferred investment accounts allow earnings to grow without current tax liability; taxes are paid upon withdrawal. Examples include traditional individual retirement accounts and many employer-sponsored plans. Some transactions also allow deferral of taxes through mechanisms like like-kind exchanges (1031), which postpone capital gains taxes after exchanging properties. In compensation, deferred compensation plans enable employees to defer receipt of a portion of compensation to future years, often with favorable tax treatment and risk considerations.

In project management and decision making, deferral can refer to postponing decisions or tasks to address dependencies, resource constraints, or to gather more information. It can improve flexibility but may increase risk or delay benefits. Deferral should be distinguished from procrastination or cancellation; the former is a strategic choice or contractual obligation, while the latter ends or scales back the activity.