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)
(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)
