The difference between accruals and deferrals
/An accrual allows a business to record expenses and revenues for which it expects to expend cash or receive cash, respectively, in a future period. Conversely, a deferral refers to the delay in recognition of an accounting transaction.
Comparing Accruals and Deferrals
The main difference between an accrual and a deferral is that an accrual is used to bring forward an accounting transaction into the current period for recognition, while a deferral is used to delay such recognition until a later period.
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Examples of the Difference Between Accruals and Deferrals
Grouch Electronics has purchased merchandise from a supplier. It has received the goods in the current month, but not the associated invoice for $500. Its accountant records an accrual of $500 to record the associated liability in the current month.
Grouch also receives an invoice for $12,000, containing an advance charge for rent on a storage facility for the next year. Its accountant records a deferral to push $11,000 of expense recognition into future months, so that recognition of the expense is matched to usage of the facility.
Grouch provides services to the local government under a contract that only allows it to bill the government at the end of a three-month project. In the first month, Grouch generates $4,000 of billable services, for which it can accrue revenue in that month.
Grouch receives a $3,000 advance payment from a customer for services that have not yet been performed. Its accountant records a deferral to push recognition of this amount into a future period, when it will have provided the corresponding services.