ACCT 203 Lecture Notes - Lecture 3: Deferral, Deferred Income, Accounts Payable
Document Summary
Overview of accrual accounting: under cash basis accounting, revenue and expenses are recorded when cash is received or paid. There are other criteria but we will not focus on at this time. Expenses are recorded when incurred and some effort is clearly made to match revenues and expenses. Recording of revenue and the recording of expenses. Unearned or deferred revenue is a liability and of course has a credit balance. This is common when someone puts a deposit down and has not yet received the goods or services. Dr to cash and cr to unearned or deferred revenue. When the time comes that revenue meets the requirements to be recognized, you simply dr the deferred or unearned. Revenue account and credit revenue (which is the first line item on the income statement and of course always has a credit balance. Rent income collected in advance is unearned until the month that the rental item is put to use .
