Accruals vs. Deferrals
An Interactive Guide to Accounting Adjustments
The Core Question: When Does It Count?
In accounting, it’s not just about when cash changes hands. The **matching principle** requires that we match revenues to the expenses incurred to earn them in the same accounting period. Accruals and Deferrals are the two key tools we use to make this happen, ensuring a company’s financial statements provide an accurate picture of its performance. This guide will help you understand how and why.
Accruals
Recognize the transaction before cash is paid or received.
Event First ➡️ Cash Later
Deferrals
Recognize the transaction after cash is paid or received.
Cash First ➡️ Event Later
Interactive Deep Dive
Click on a concept to see how it works in practice.
Initial Balance Sheet Impact
Key Differences at a Glance
| Feature | Accrual | Deferral |
|---|---|---|
| Timing | Event happens before cash. | Cash happens before event. |
| Purpose | Record expense/revenue when it occurs, not when cash moves. | Recognize expense/revenue over time after cash has moved. |
| Balance Sheet Impact | Creates a receivable (Asset) or a payable (Liability). | Creates a prepaid item (Asset) or unearned revenue (Liability). |