Deferrals and Accruals

Deferral is the postponement of the recognition of "an expense already paid but not yet incurred," or of "a revenue already collected but not yet earned". This adjustment deals with an amount already recorded in a balance sheet account; the entry, in affect, decrease the balance sheet account and increase the income statement account.Deferrals would be needed in two cases:

1. Allocating assets to expense to reflect expenses incurred during the accounting period. (e.g prepaid insurance, supplies and depreciation).

2. Allocating revenues received in advance to revenue to reflect revenues earned during  the accounting period.(e.g subscription)

Accrual is the recognition of "an expense already incurred but unpaid" or revenue earned but not collected". This adjustment deals with an amount unrecorded in any account; the entry, in effect, increase both a balance sheet and  an income statement  account. Accruals would be required to cases:

1. Accruing expenses to reflect expenses incurred during the accounting period that are unpaid and unrecorded.
2. Accruing revenue  to reflect revenue earned during the accounting period that are uncollected and unrecorded.