Accrued Items and Deferred (Unearned or Prepaid) Items

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Examlex · Accepted Answer

The Answer is Accrual accounting recognizes and reports the effects of transactions and other events in the time periods to which they relate rather than only when cash is received or paid. Accrual accounting attempts to match revenues and the expenses associated with those revenues in order to determine net income for an accounting period.
An accrued item is an item of revenue or expense that has been recognized or incurred during the period, but has not yet been collected or paid in cash. An example of an accrued revenue is rent for the last month of an accounting period that has been recognized by a landlord but not yet paid by the tenant. An example of an accrued expense is salaries incurred for the last week of an accounting period that are not payable until the subsequent accounting period.
A deferred (unearned or prepaid) item is an item of revenue or expense that has been received or paid in cash, but has not yet been recognized or consumed. An example of a deferred revenue is unearned subscription revenue collected in advance of being recognized. An example of a deferred expense is an insurance premium paid at the end of an accounting period which will provide insurance coverage for the first six months of the subsequent period.

Accrued Items and Deferred (Unearned or Prepaid) Items

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