Deferral Meaning and Expense & Revenue Deferral Accounting Entries

Deferral - Cash receipt/expenditure precedes accrual-basis recognition

(1) Revenue—postponement of recognition of revenue; cash is received, but revenue is not earned
(2) Expense—postponement of recognition of expense; cash is paid, but expense is not incurred
(3) A deferral postpones recognition of revenue or expense by placing the amount in liability or asset accounts.
(4) Two methods are possible for deferring revenues and expenses depending on whether real or nominal
accounts are originally used to record the cash transaction.

Deferrals of Expense Accounting
Expense method 
When paid -      Insurance expense xx 
                                    To Cash xx 
Year-end   -     Prepaid insurance xx 
                                    To Insurance expense xx  (Reversal-Yes) 

Asset method

When paid -      Prepaid insurance xx

                                    To Cash xx
Year-end   -      Insurance expense xx 
                                    Prepaid insurance xx   (Reversal No)

Deferrals of Revenue Accounting
Revenue method 
When received -      Cash xx 
                                     To Rent revenue xx 
Year-end -               Rent revenue xx
                                     To Unearned rent xx  (Reversal Yes) 

Liability method
When received -      Cash xx
                                    To Unearned rent xx

Year-end -              Unearned rent xx

                                   To Rent revenue xx (Reversal No)