Problem Identify five types of deferred charges and describe the rationale of deferral for each. Step-by-step solution 1. Step 1 of 3 "The deferred charges are type of costs which include startup costs, financing cost of long term debts, and cost of advertising that are carried on as non-current asset on the balance sheet. Comment 2. Step 2 of 3 In contrast to prepaid expenses the deferred charges extend over a longer period of time and thus the frequency of occurrence is very low." Comment 3. Step 3 of 3 a. "Business that uses the accrual basis of accounting often is associated with deferred expenses on the balance sheet. The accounting principle behind this convention is that business should recognize expenses as and when they occur and not on the basis of which payment is being made. Once the business recognizes the expenses it is customary to remove the deferred charges from the balance sheet On the basis of this there are number of categories based on which the deferred charges can be subdivided and their respective rationale is that they hold future benefits for the business. Thus the practices of deferring expenditures are for larger, more expensive investments that would be consumed over time. The examples of deferred expenditure and their rational are listed below: o Startup costs-These are kind of costs which are kind of preliminary expenses . They are of the nature of fictitious assets as these expenses are incurred by the business before commencement , or at the time of initial startup phase. These are kind of capital nature expenses that are needed to be capitalized with fixed assets. o Rent on Office Space-These kinds of expenses are the common form in case of business. The deferred rents are not always consistent At times of inflation the monthly rent increases over time. These kind of expenses must include a deferred rent expense account where the cost of rent for entire period including discount months are calculated that can go up with inflation. o Advertisement Costs-These costs include a broad spectrum of costs which are involved as promotional expenditures for both new and established products. So some of the business capitalizes the advertisement expenses as because the promotional and acquisition costs are amortized over an arbitrary period based on the life of the asset and sometimes based on the related revenue