Financial Accounting 101: Accruals and Deferrals - Accrual Accounting - Made Easy

This is the lesson that helped me to understand deferrals and accruals. Think of Deferrals as ‘Dollars before Action’ and Accruals as ‘Action before Dollars.’ Deferred Expense -- Asset: Prepaid Expense Think of this as an expense where we paid Dollars before the Action of incurring the expense. Our vendors owe us, this is an asset. Deferred Revenue -- Liability: Unearned Revenue Think of this as revenues that we accepted Dollars before the Action of earning them. We owe our customers, this is a liability. Accrued Expense -- Liability: Account Payable Think of this as a time when the Action of incurring an expense came before the Dollars we need to pay. We owe our vendors money, this is a liability. Accrued Revenues -- Asset: Account Receivable Think of this as the Action of earning the revenues came before receiving the Dollars we need to collect. Our customers owe us money, this is an asset.