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This question is about cost accountant skills.
What is a deferral in accounting?
A deferral in accounting is when the exchange of money for products or services comes before the delivery of the products or services to the customer. Deferrals in accounting normally do not count revenue earned until the next accounting period.
An accounting period is a time frame used by organizations to gather and prepare documents related to their financial activities. Accounting periods can come in many different frames of time, the most common is one fiscal year, however, companies might choose to break down accounting periods into smaller segments.
Here are some co-accounting periods that deferrals might be included in:
Calendar year
Fiscal year
4-4-5 calendar year
Calendar quarter
Fiscal quarter
Calendar month
Fiscal month
There are two main elements in deferral accounting, these are:
Deferred expenses
Deferred expenses are also referred to as prepaid expenses. These expenses represent payments a company makes in advance for the use of certain products, services, or resources. These expenses are normally recorded on an organization's balance sheet as a contra liability or as an asset until moved to its income statement and listed as expenses.
Deferred revenue
Deferred revenue is also referred to as unearned revenue. Deferred revenue is the money a business gets in advance for products, services, or resources it is contracted to provide in the future to a client or customer. This is not recorded as revenue on a balance sheet, instead, it is listed as a current liability because it still owes the client or customer its offering.
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