Deferrals:
Deferrals refer to the revenues that are collected in advance before the services are provided or sales are made to the customer, and the expenses are paid in advance before the expenses are incurred.
Deferrals are classified into two types. They are prepaid expenses, and unearned revenues.
Prepaid expenses: The expenses are paid in cash, before they are incurred.
Unearned revenue: The cash is received, before the services are performed.
Accruals:
Accruals refer to the revenues that are generated from goods delivered or, service performed to the customer, but cash is not yet received from the customer, and the expenses are incurred, but cash is not yet paid.
Accruals are classified into two types. They are accrued revenues, and accrued expenses.
Accrued revenues: Revenues are generated but not yet received in cash.
Accrued expenses: Expenses are incurred but not yet paid in cash.
To indicate: The types of adjustment for the given transactions.
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- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College