What is deferred liability?
Deferred liability refers to a debt that is incurred and that a person or entity does not resolve with a payment. The payment is due sometime in the future and therefore the liability is said to be "deferred". Various types of liabilities can be deferred, from loan payments to income taxes that must be paid. Deferred liabilities are recorded in the accounting books to provide a more complete financial picture.
Deferred tax liability is a very common form of deferred liability. In this case, it is recognized in the books that the additional tax is incurred but not paid at the time. There are many reasons why people may incur a liability that remains unpaid, such as changes in accounting practices and tax rates, acceptance of credits that have not yet been applied, etc. By recording the deferred liability on the books, an accountant can ensure that it is recorded so that it is not a surprise at maturity.
Debts in general, also known as liabilities because they represent a liability on someone's books, can be deferred for a variety of reasons. Deferred payment can be structured into debt, such as when someone buys a new car and misses payments within the first year, and changing circumstances may require renegotiating the debt, including deferring payments. As long as a debt is due and not paid, it is considered a deferred liability.
Financing is one of the pillars of operations for large and small companies, as well as for individuals. Incurring debt allows people to make unaffordable investments so their business and financial positions can grow. Without the ability to access credit, people would be limited by the cash available when it comes to making investments and this can be limiting.
The ability to defer debt and make payments in installments is also important, allowing people to repay debt at a sustainable rate. Care must be taken in recording deferred liabilities so that the accounts are accurate, as failure to record a debt can make the books look better than they are. With debt also come related expenses like service fees, interest, etc. A deferred liability represents a business or personal liability that will be paid in the future.