Accounting for Accruals and Deferrals

These flashcards cover key terms and concepts related to accruals and deferrals in accounting, helping to understand the principles of Accrual Accounting.

Accrual Accounting

A method of accounting where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.

Accrual

A revenue or expense event that is recognized before cash is exchanged.

Deferral

A revenue or expense event that is recognized after cash has been exchanged.

Accounts Receivable

Money owed to a company by its clients for services performed or goods sold on credit.

Accrued Expenses

Expenses that are recognized before cash is paid.

Liabilities

A company’s legal debts or obligations that arise during business operations.

Retained Earnings

The cumulative amount of net income kept in a company instead of being paid out as dividends.

Temporary Accounts

Accounts that track financial results for a limited period of time and are closed at the end of an accounting period.

Permanent Accounts

Accounts that carry their balances into the next accounting period.

Matching Concept

The principle that expenses should be matched with the revenues they help to generate, preventing distortions in net income.