Unexpired Cost
Unexpired costs are the assets cost which is not yet move into income statement but stay in balance sheet in form of residual value. In business operation, the cost incurs need to provide future benefit to company. If the cost and benefit incur in the same accounting period, the cost will be recorded into the income statement. If the company not yet utilize the benefit, the cost will be recorded on the balance sheet as the assets such as fixed assets.
The accounting follows the matching principle which cost and revenue (benefit) should be recorded in the same accounting period. Unexpired cost will keep in the balance sheet in form of assets until the company utilizes the associated benefit. It will be there until the assets are used in the future, and it will be reclassed to cost/expense in the income statement.
Unexpired cost is the assets that benefits are not yet fully consumed by the company. They are temporary records as the current asset on balance sheet. They are the assets which not yet classified to expense as they still have some value.
Unexpired Cost Formula
| Unexpired Cost = Cost of Asset – Revenue or Benefit Made from Assets |
Unexpired Cost Example
- Company paids a rental fee $ 12,000 for 12 months in advance. By the end of 5th month, the company still has $ 7,000 of unexpired cost as the company not yet consume the benefit from rental. Month by month, this unexpired cost will reclass to expense.
- Company purchase inventory cost $ 10,000. This cost will be reclassed to the cost of goods only the inventory is sold to the customers. If not, they are recorded as the asset on the balance sheet.
Unexpired Cost Vs Fictitious Assets
Fictitious Assets are fake assets that not meet any requirement to the assets. They are recorded as assets to prevent a huge impact on the income statement. The company decided to delay the recognition of expenses to prevent such a loss.
Unexpired cost is the expense which not yet record into the income statement as their benefit are not yet consume. The company intends to follow the matching principle of revenue and expense.
