[neverendingtesting]

Hi guys!

I am new to the forum and I am wondering if someone can help me with these concepts. I have having trouble understanding accrued/deferred concepts.

Can someone please give me an example of each: accrued asset, accrued liability, deferred asset and deferred liability? Thanks in advance!

I really wish FAR can be easier =(

B - 07/11/2011, 90
A - 08/24/2011, 90
R - 11/26/2011
F - 10/04/2011

[Anonymous]

A deferral in nature is something that you either have paid or received cash for but will not recognize the benefit/obligation until the future (e.g. unearned revenue is cash you have received, but not yet earned; thus, a deferred liability on the balance sheet. Prepaid assets, like insurance, for example, are considered deferred assets; you pay during contract initiation but do not recognize the benefit incrementally until future periods). Likewise, an accrual is something where you recognize the benefit/cost immediately, but pay/receive cash in the future. The best example of these that I can think of are accounts receivable (accrued asset) and interest expense (accrued liability). I hope that helps.

[neverendingtesting]

Thanks! That helps a lot. But I am still a little confused on the wording. I was working on the Becker questions and one question was about “accrued real estate taxes.”

When the real estate taxes are “accrued,” does it mean that it's a Taxes payable, i.e. accrued liability?

B - 07/11/2011, 90
A - 08/24/2011, 90
R - 11/26/2011
F - 10/04/2011

[Anonymous]

Correct…it means that you aren't going to pay your real estate taxes until some point in the future, however, you have incurred a portion of the expense. Let's say your annual real estate taxes are $1,200 due on Dec 31. Well, each month, even though you aren't actually PAYING the taxes, you are accruing for a portion of the expense ($100 [1,200/12mos]). So it becomes an accrued liability.

[Anonymous]

One way to help understand this concept is to remember the order of the journal entry for cash. This is exactly what Baseball said, just presented in a different way…

For Accruals, cash comes LAST:

dr. Wages Expense

cr. Accrued Wages Payable

When wages are paid…

dr. Cash

cr. Accrued Wages Payable

For Deferrals, cash comes FIRST:

dr. Cash

cr. Deferred Revenue

As revenue is earned…

dr. Deferred Revenue

cr. Revenue

[Anonymous]

WHOOOOAAAA – just realized I majorly screwed up the second journal entry under accruals although I'm sure you knew what I meant.

dr. Accrued Wages Payable

cr. Cash

Hope I don't do something that stupid on exam day 😮

[neverendingtesting]

Thanks guys! This really cleared things up. I made the same mistake but I understand it the first and didn't even notice the mistake. Hehe. Thanks again!!

B - 07/11/2011, 90
A - 08/24/2011, 90
R - 11/26/2011
F - 10/04/2011

[Author]

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