A deferred charge is a cost that has been paid but is carried on the balance sheet as an asset, to be charged to expense in later periods as the benefit is received. It is a form of deferred expenses, also known as prepaid expenses. The main entry and its companion on prepaid expenses explain the basic accounting.
How the term is usually used
In practice, "deferred charge" tends to be used for payments whose benefit stretches over more than one year, while "prepaid expense" is used for shorter items such as a year's insurance or a month's rent paid in advance. Deferred charges are therefore usually shown among noncurrent assets, often grouped under a heading such as "deferred charges and other assets".
Examples have included multi-year insurance or maintenance contracts paid up front, certain start-up and contract costs, and, in older practice, bond issue costs, which are now presented as a deduction from the related debt under US GAAP. Each period a portion is moved to the income statement, in line with the matching principle.
Because deferred charges are costs already spent, analysts often treat them cautiously. They cannot normally be sold or turned back into cash, and a growing balance can mean that a company is postponing expenses that might otherwise reduce current profit.