Accounting Essential Definitions: Accrual and Adjusting Entry

What is accrual in accounting? What is accrued expense? What is adjusting entry? You can get the answer on this page.

• Accruals – Adjusting entries for either accrued revenues or accrued expenses.
• Accrual-basis accounting – Accounting basis in which companies record transactions that change a company’s financial statements in the periods in which the events occur.
• Accrued expenses – Expenses incurred but not yet paid in cash or recorded.
• Accrued revenues – Revenues earned but not yet received in cash or recorded.
• Deferrals – Adjusting entries for either prepaid expenses or unearned revenues.
• Adjusting entries – Entries made at the end of an accounting period to ensure that companies follow the revenue recognition and matching principles.
• Adjusted trial balance – A list of accounts and their balances after the company has made all adjustments.
• Book value – The difference between the cost of a depreciable asset and its related accumulated depreciation.
• Calendar year – An accounting period that extends from January 1 to December 31.
• Cash-basis accounting – Accounting basis in which companies record revenue when they receive cash and an expense when they pay cash.
• Contra-asset account – An account offset against an asset account on the balance sheet.
• Fiscal year – An accounting period that is one year in length.
• Interim periods – Monthly or quarterly accounting time periods.
• Matching principle – The principle that companies match efforts (expenses) with accomplishments (revenues).
• Prepaid expenses – Expenses paid in cash that benefit more than one accounting period and that are recorded as assets.
• Revenue recognition principle – The principle that companies recognize revenue in the accounting period in which it is earned.
• Time period assumption – An assumption that accountants can divide the economic life of a business into artificial time periods.
• Unearned revenues – Cash received and recorded as liabilities before revenue is earned.