Unexpired cost

An unexpired cost is any cost that has not yet been charged to expense because it still represents some residual value. This cost is frequently associated with revenue that has not yet been recognized; under the matching principle, an unexpired cost is maintained on the books as an asset until the associated revenue is recognized, at which point the asset is charged to expense. Examples of unexpired costs are:

  • A company prepays $12,000 for 12 months of advertising. After three months, $9,000 of this prepayment is still an unexpired cost, because the associated advertising has not yet occurred.
  • A company acquires $5,000 of merchandise. Until the goods are sold, the $5,000 is an unexpired cost. Once the related sale is recognized, the $5,000 is charged to expense.