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Financial Management

Accruals vs Deferrals: The Difference, With Journal Entries for Each

Sherman Hsieh
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Accruals vs Deferrals: The Difference, With Journal Entries for Each

Last updated: October 17, 2026 · Independent guide · We do not sell rankings or coverage.

The difference between accruals and deferrals is whether cash has moved yet. An accrual records revenue earned or an expense incurred before cash changes hands. A deferral holds cash already received or paid on the balance sheet and recognizes the revenue or expense later, as you deliver or use what was paid for. Accruals vs deferrals gives you four adjustment types: accrued revenue, accrued expense, deferred revenue and prepaid expense.

Definition: accruals vs deferrals

FASB’s conceptual framework describes accrual as “the accounting process of recognizing assets or liabilities” for amounts expected to be received or paid in the future, and deferral as “the accounting process of recognizing a liability resulting from a current cash receipt,” or an asset from a current cash payment, with recognition of the revenue or expense postponed. The wording comes from Concepts Statement 6, carried into Concepts Statement 8, Chapter 4 (FASB, December 2021, via PwC Viewpoint).

The table shows each month-end entry, what happens next and where the balance sits.

Type Month-end entry Reversal or later entry Balance sheet
Accrued revenue (earned, not billed) Dr Unbilled receivables, Cr Revenue Reverse on day 1 of next period; the invoice then books AR and revenue in full Current asset
Accrued expense (incurred, not billed) Dr Expense, Cr Accrued liabilities Reverse on day 1 of next period; the vendor bill then books AP and expense in full Current liability
Deferred revenue (cash in, not earned) On receipt: Dr Cash, Cr Deferred revenue. Each month: Dr Deferred revenue, Cr Revenue No reversal; the monthly release runs until the balance is zero Liability, current for the next 12 months
Prepaid expense (cash out, not used) On payment: Dr Prepaid expenses, Cr Cash. Each month: Dr Expense, Cr Prepaid expenses No reversal; amortization runs until the balance is zero Current asset (long-term portion if over 12 months)

SEC Regulation S-X lists prepaid expenses as a current asset and puts accrued payrolls and interest under other current liabilities (eCFR, 17 CFR 210.5-02, up to date as of October 15, 2026). Under ASC 606, deferred revenue is a contract liability, presented “when the payment is made or the payment is due” (Deloitte DART, ASC 606-10-45-2, no date shown).

Example: one October close

Illustration: the figures below are constructed for this article. A small agency moving from cash to accrual books closes October 2026.

  • Accrued revenue: $6,000 of October consulting will be invoiced November 5. Debit unbilled receivables, credit revenue $6,000, reversing November 1.
  • Accrued expense: a contractor will bill $2,400 in November for October work. Debit contract labor, credit accrued liabilities $2,400, reversing November 1.
  • Deferred revenue: a client paid $9,000 on October 1 for a three-month retainer, credited to deferred revenue. Release $3,000 to revenue, leaving $6,000.
  • Prepaid expense: the agency paid $3,600 on October 1 for 12 months of insurance. Expense $300, leaving $3,300 prepaid. Our prepaid expense amortization guide covers mid-month starts.

Cash books would show $9,000 of revenue and $3,600 of expense for October. Accrual books show $9,000 of revenue ($6,000 plus $3,000) and $2,700 of expense ($2,400 plus $300).

How accruals and deferrals are used in practice and in software

Accruals stand in for an invoice or bill that has not arrived, so you reverse them and let the real document post. Deferrals are released on a schedule, so auto-reversing one cancels the month’s revenue or expense, a common error on new accrual books.

A close checklist catches missed items with standing checks: compare receipts and approved time against bills entered, compare work delivered against invoices sent, tie prepaid and deferred revenue balances to their schedules, and confirm last month’s accruals reversed. Our guide to accounting close automation covers task and sign-off tools.

In QuickBooks Online you reverse a saved journal entry with the Reverse action, and the reversal is dated the first day of the following month (Intuit, August 5, 2026). In NetSuite you enter a Reversal Date on the journal; with Defer Entry checked, the reversal is created automatically on that date (Oracle NetSuite Help, no date shown). Deferrals run from amortization or revenue schedules, which our accrual accounting automation article describes.

How we researched this

In October 2026 we read the top results for “accruals vs deferrals” from AccountingTools, Tipalti and Rho (Tipalti and Rho sell finance software). None puts the entry, reversal treatment and balance sheet line for all four types in one table or gives a close checklist. We used FASB, SEC and ASC 606 text and vendor documentation.

Related terms

  • Subscription revenue recognition: releasing deferred revenue on recurring contracts.
  • Adjusting journal entries: all month-end adjustments, including depreciation and estimates.
  • Deferred revenue vs unearned revenue: two names for the same liability.
  • Reversing entries: day-1 entries that clear last month’s accruals.

Related guides

Frequently asked questions

Is prepaid expense an accrual or a deferral?

A prepaid expense is a deferral. You have paid cash, so you hold an asset and move it to expense as you use the coverage or service.

Do deferrals need reversing entries?

No. Deferred revenue and prepaid expenses are released on a schedule until the balance reaches zero, and reversing them cancels what you recognized.

Is accrued revenue the same as accounts receivable?

Not quite. Accrued revenue is earned but not yet invoiced, often booked as unbilled receivables. It becomes an account receivable once you invoice.

Sources

Sherman Hsieh

CEO & Editor-in-Chief, Business-Software.com
Independent analysis of enterprise software — ERP, CRM and more
Sherman Hsieh is the founder, CEO, and editor-in-chief of Business-Software.com. He leads the site's independent, buyer-focused coverage of ERP, CRM, and other business systems, including vendor-neutral comparisons, pricing analysis, and implementation guidance. Before founding Business-Software.com, Sherman was an executive at Siebel ...

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