Relax & Learn – Accruals & Deferrals

Why Learn Accruals & Deferrals?

In accounting, timing is everything. Businesses do not always receive cash when revenue is earned or pay cash when expenses are incurred. To present an accurate picture of financial performance, accountants use the accrual basis of accounting, which records revenues and expenses when they actually happen—not just when cash changes hands.

Accruals recognize income earned but not yet received and expenses incurred but not yet paid:

• Accrued Revenue: Interest of $500 earned in December but collected in January.
• Accrued Expense: Salaries of $2,000 owed at year-end but not yet paid.

Deferrals involve cash received or paid before the related revenue is earned or the expense is used up:

• Deferred Revenue: Rent of $6,000 received in advance for the next 6 months.
• Deferred Expense: Prepaid insurance of $1,200 for the upcoming year.

Learning accruals and deferrals ensures financial statements reflect the true performance and position of a business. Misclassifying them can lead to overstated or understated profits, misleading balance sheets, and poor decisions by owners, managers, and investors.

How to Use This Tool

• Step 1: Look at the transaction card shown in the center (the green box).
• Step 2: Drag the card into the correct basket:
  • Accrued Revenue → Earned but not yet received.
  • Accrued Expense → Incurred but not yet paid.
  • Deferred Revenue → Cash received before earning.
  • Deferred Expense → Payment made before use.
• Step 3: Each correct answer gives +10 points. Wrong answers deduct –5 points.
• Step 4: Watch your score and wrong attempts below the baskets.
• Step 5: Click Restart Game anytime for a new round.