Regulatory asset can be defined as specific costs or the cost revenues that is permitted to a US public utility company to defer to its balance sheet. This specific cost is permitted by a US regulatory agency or a regulatory authority. The US public utility company is usually a utility offering company such as energy supplying company. These amount that are defer to the balance sheet of the company will otherwise appear on the income statement of the company and will be counted under the current expenses or current revenues of the company.
There are a number of accounting methods that can be used to disclose the regulatory asset of the company. These accounting methods may cause a great difference that how the financial condition of the electric utility company is reported in its financial reports. For example according to the accounting methods that come under UK GAAP authority these assets are usually recorded on the balance sheet of the company. However on the other hand under recently developed International Financial Reporting Standards the regulatory asset of a public utility such as electric company are not permitted to be recorded or recognized on the balance sheet of the company. Instead of recording the costs on the balance sheet these costs are recorded on the income statement of the company at the time when these costs incurred. The recoveries of these costs will be recognized as receivables and will be recorded on the costs receivable when recognized.
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