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What is Deferred Liability?

Mary McMahon
By
Updated May 16, 2024
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Deferred liability refers to a debt which is incurred and due which a person or entity does not resolve with a payment. The payment will be due at some point in the future and thus the liability is said to be “deferred.” A number of types of liabilities can be deferred, ranging from payments on loans to income taxes which must be paid. Deferred liabilities are accounted for 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 extra tax liability is being incurred, but it is not paid at the time. There are lots of reasons why people might incur liability which remains unpaid, such as changes in accounting practices and tax rates, acceptance of credits which are not yet applied, and so forth. By recording the deferred liability in the books, an accountant can make sure that it is recorded so that it will not be a surprise when it comes due.

Debts in general, also known as liabilities because they represent a liability in someone's books, can be deferred for a number of reasons. Deferred payment may be structured into a debt, as for example when someone buys a new car and makes no payments for the first year, and changing circumstances may require renegotiation of the debt, including deferment of payments. As long as a debt is owed and not paid, it is considered a deferred liability.

Financing is one of the cornerstones of operations for businesses large and small as well as individuals. Incurring debt allows people to make investments which would otherwise not be accessible so that their companies and financial positions can grow. Without the ability to access credit, people would be limited to their cash on hand when it comes to making investments and this can be limiting.

The ability to defer debt and stagger payments is also important as it allows people to repay debt at a rate which is sustainable. Care must be taken to record deferred liabilities so that accounts are accurate, as failure to record a debt can make the books appear better than they are. With debts also come related expenses such as service charges, interest, and so forth. A deferred liability represents a business or personal liability which will be payable in the future.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments

By anon307622 — On Dec 06, 2012

The thing is, when it comes to the balance sheet, there is no such thing as a liability as, even though the payment is postponed. It is still just a liability with a new date of maturity, hence there is no such thing in pure accounting terms. This can be backed up by the fact that none of the IAS's use such a word.

By JessicaLynn — On Jul 10, 2011

@ceilingcat - Wow! $400 a month is a lot of money. I'm glad your boyfriend was able to get that deferred for now.

I was able to defer two of my car payments last year. I was working at a bar at the time and we had really severe winter weather. The bar was closed for about two and a half weeks, during which time I wasn't making any income. I got really behind so I'm glad I had the option to defer two months worth of care payments. It really helped me get my finances back on track.

By ceilingcat — On Jul 10, 2011

My boyfriend recently deferred his student loan payment which I guess is an example of deferred liability. He graduated from college about a year and a half ago and works an entry level job in his field.

The student loan people were asking for a payment of $400 a month! I don't know anyone who can afford that on an entry level job. I know he's going to have to start making payments eventually but at least it is deferred for right now.

Mary McMahon

Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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