Skip to main content

Accruals and Deferrals

Accruals and deferrals are adjusting entries that ensure revenue and expenses are recorded in the correct period.

Accruals​

Record revenues earned or expenses incurred before cash is exchanged.

Accrued Revenue​

  • Work completed but not yet billed
  • Interest earned but not received
  • Rent income earned but not collected

Accrued Expenses​

  • Utilities used but not yet billed
  • Wages earned but not yet paid
  • Interest owed but not yet paid
  • Taxes owed but not yet paid

Deferrals​

Adjust for cash exchanged before revenue is earned or expense is incurred.

Deferred Revenue (Unearned Revenue)​

  • Customer prepayments
  • Subscription fees received in advance
  • Deposits for future services

Deferred Expenses (Prepaid Expenses)​

  • Insurance paid in advance
  • Rent paid in advance
  • Annual software licenses
  • Prepaid supplies

Why They Matter​

  • Ensure financial statements reflect economic reality
  • Match revenues with related expenses
  • Comply with accrual accounting principles
  • Provide accurate profit measurement

Next Steps​

Learn about depreciation and how to allocate asset costs over time.