|Prepayments (Deferral - cash paid or received before consumption)||Accrual - cash paid or received after consumption|
|Expenses||Prepaid expenses: for expenses paid in cash and recorded as assets before they are used||Accrued expenses: for expenses incurred but not yet paid in cash or recorded|
|Revenues||Unearned revenue: for revenues received in cash and recorded as liabilities before they are earned||Accrued revenues: for revenues earned but not yet recorded or received in cash|
A company receiving the cash for benefits yet to be delivered will have to record the amount in an unearned revenue liability account. Then, an adjusting entry to recognize the revenue is used as necessary.
Debit | Credit
Cash $12 |
Unearned Revenue | $12
The adjusting entry reporting each month after the delivery is:
Debit | Credit
Unearned Revenue $1 |
Revenue | $1
The unearned revenue after the first month is therefore $11 and revenue reported in the income statement is $1.
Accrued expenses have not yet been paid for, so they are recorded in a payable account. Expenses for interest, taxes, rent, and salaries are commonly accrued for reporting purposes.
The entry for bad debt expense can also be classified as an estimate.
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Oct 23, 2013; A patent by the inventor Huang, Chun-Chia (New Taipei, TW), filed on June 8, 2012, was published online on October 8, 2013,...