Adjusting Entries Examples: Accruals vs Deferrals
Tutorly · Financial Accounting
Adjusting Entries Examples: Accruals vs Deferrals
There are four types of adjusting entries, split into two families. Accruals record something that happened but hasn’t been entered yet — accrued revenue and accrued expenses. Deferrals fix something recorded too early — unearned (deferred) revenue and prepaid (deferred) expenses. Every one shifts an amount between the balance sheet and the income statement so each lands in the right period.
The 4 types of adjusting entries
| Type | When | Debit | Credit |
|---|---|---|---|
| Accrued revenue | Earned, not yet recorded/received | Asset (e.g. A/R) | Revenue |
| Accrued expense | Incurred, not yet recorded/paid | Expense | Liability (payable) |
| Unearned revenue | Cash received before earned | Unearned revenue (liability) | Revenue |
| Prepaid expense | Paid before used up | Expense | Prepaid asset |
Worked example: month-end at a Calgary studio
It’s January 31. The studio needs four adjusting entries before its statements are right.
1. Prepaid expense — insurance
On Jan 1 the studio prepaid $2,400 for 12 months of insurance (recorded as Prepaid insurance). One month is now used up: $2,400 ÷ 12 = $200.
| Insurance expense | 200 | |
| Prepaid insurance | 200 |
2. Accrued expense — salaries
Employees earned $1,500 in the last days of January that won’t be paid until February.
| Salaries expense | 1,500 | |
| Salaries payable | 1,500 |
3. Unearned revenue — a retainer
A client paid $3,000 upfront for three months of design work (recorded as Unearned revenue). One month is now earned: $1,000.
| Unearned revenue | 1,000 | |
| Service revenue | 1,000 |
4. Accrued revenue — work done, not yet billed
The studio finished $800 of work in January it hasn’t invoiced yet.
| Accounts receivable | 800 | |
| Service revenue | 800 |
Mixing up which account moves? A tutor can drill adjusting entries with your own homework until they’re automatic — book a session.
The mistake that costs the most marks
Adjusting entries never touch Cash — cash already moved (or hasn’t yet). If your entry debits or credits Cash, it isn’t an adjusting entry. The other classic slip is adjusting for the whole prepaid amount instead of just the portion used up this period.
Frequently asked questions
What are the 4 types of adjusting entries?
Accrued revenue, accrued expenses, unearned (deferred) revenue, and prepaid (deferred) expenses. Accruals record items not yet entered; deferrals release amounts recorded too early.
Do adjusting entries ever involve cash?
No. Each adjusting entry hits exactly one income-statement account and one balance-sheet account — never Cash, because the cash timing is the whole reason the adjustment is needed.
What’s the difference between an accrual and a deferral?
An accrual records revenue or expense before the cash moves; a deferral delays revenue or expense that was recorded when the cash moved early.
When are adjusting entries made?
At the end of each accounting period, before preparing the financial statements, so revenues and expenses fall in the correct period.
Adjusting entries on your next midterm?
Book 1-on-1 or small-group tutoring and we’ll work them until accruals and deferrals are second nature.
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