Deferral
Definition: Recognize after cash exchanged
Scope:BroadDifficulty:Easy
Recognize after cash exchanged
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Defer revenue (cash received first) | ||
| Customer pays $3,600 for future services. | ||
| CashAsset+ | $3,600 | |
| Unearned RevenueLiability+ | $3,600 | |
| Cash received before earning—recorded as liability. | ||
| 2. Defer expense (cash paid first) | ||
| Pay $6,000 for 12-month insurance policy. | ||
| Prepaid InsuranceAsset+ | $6,000 | |
| CashAsset− | $6,000 | |
| Cash paid before consuming—recorded as asset. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$3,600.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$6,000.00
$2,400.00
Unearned RevenueUnearned RevenueLiabilityAn obligation the business owes to others. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$3,600.00
Normal bal. ▶
$3,600.00
Prepaid InsurancePrepaid InsuranceAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$6,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$6,000.00
DurationN/A
External Links
- Deferral — Wikipedia