Accruals and Deferrals

The use of accruals and deferrals in accounting ensures that revenue and expenditure is allocated to the correct accounting period. Adjusting the accounting records for accruals and deferrals ensures that financial statements are prepared on an accruals and not cash basis and comply with the matching concept of accounting.

The term accruals and deferrals applies equally to both revenue and expenses as explained below.

Revenue Accruals and Deferrals

The difference between revenue accruals and deferrals are summarized in the table below.

Deferred and accrued revenue
Earned Unearned
Not received Accrual
Received Deferral
  1. Accrual: Accrue if the revenue has been earned but the cash has not yet been received. Accrued revenue is an asset of the business. The adjusting journal entry will be between a revenue and an asset account.
  2. Deferral: Defer if the cash has been received but the revenue has not yet been earned (unearned). Deferred revenue is a liability of the business, and is sometimes referred to as unearned revenue. The adjusting journal entry will be between a revenue and a liability account.

Expense Accruals and Deferrals

The difference between expense accruals and deferrals are summarized in the table below.

Accrued and deferred expenses
Incurred Not incurred
Not paid Accrual
Paid Deferral
  1. Accrual: Accrue if the expense has been incurred but the cash has not yet been paid. Accrued expenses are a liability of the business. The adjusting journal entry will be between an expense and a liability account.
  2. Deferral: Defer if the cash has been paid but the expense has not yet been incurred. Deferred expenses are an asset of the business. The adjusting journal entry will be between an expense and an asset account.

Accruals and Deferrals Journal Entries

The adjusting journal entries for accruals and deferrals will always be between an income statement account (revenue or expense) and a balance sheet account (asset or liability). This is summarized in the table below.

Accounts used for accruals and deferrals
Asset Liability
Revenue Accrual Deferral
Expense Deferral Accrual

The examples below set out typical bookkeeping journal entries in relation to accruals and deferrals of revenue and expenditure.

Revenue Accrual Journal Entry

The adjusting entry is between a revenue and an asset account.

Revenue accrual journal
Account Debit Credit
Revenue accrual XXX
Revenue XXX

This accrued revenue journal entry example establishes an asset account in the balance sheet.

Revenue Deferral Journal Entry

The original cash entry is posted to the revenue account. The adjusting entry is between a revenue and a liability account.

Revenue deferral journal
Account Debit Credit
Revenue XXX
Deferred revenue XXX

The deferred revenue journal entry example establishes a liability account in the balance sheet, the liability is sometimes referred to as the unearned revenue account.

Expenses Accrual Journal Entry

The adjusting entry is between an expense and a liability account.

Expense accrual journal
Account Debit Credit
Expense XXX
Expense accrual XXX

The journal entry for accrued expenses establishes a balance sheet liability account.

Expenses Deferral Journal Entry

The original cash entry is to an expense account. The adjusting entry is between an expense and a liability account.

Expense deferral journal
Account Debit Credit
Expense deferred XXX
Expense XXX

The deferred expenditure journal entry establishes an asset account in the balance sheet.

Deferred or Prepaid Expenses

It should be noted that in relation to expenses the term deferral is often used interchangeably with the term prepayment. Generally, a deferred expense is one which has been paid more than a one year in advance and is shown as a long term asset in the balance sheet, whereas a prepaid expense or prepayment is an expense which has been paid less than one year in advance and is therefore shown as a current asset in the balance sheet.

Examples of typically encountered accruals and deferrals journals are shown in our accrued and deferred income and expenditure journals reference post.

Accruals and Deferrals September 18th, 2017Team

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