Question

What is a deferral transaction?

What is an accrual transaction?

Why do we need to record these transactions?

Answer 1

Deferral transaction: -

In accounting, a deferral refers to the delay in recognition deferral transactionof an accounting transaction. This can arise with either a revenue or expenses transaction. For example, if a customer were to pay in advance for goods or services not yet delivered, then the recipient should defer recognition of the payment as revenue until such time as it delivers the related goods or services. In regard to expenses, a company may pay a supplier in advance, but should defer recognition of the related expense until such time as it receives and consumes the item for which it paid. In the case of the deferral of a revenue transaction, you would credit a liability account instead of the revenue account. In the case of the deferral of an expense transaction, you would debit an asset account instead of an expense account

Accrual transaction: -

Accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. The term "accrual" refers to any individual entry recording revenue or expense in the absence of a cash transaction

The exchange of goods or services for money isn't always simultaneous in the business world. When a service is provided without immediate compensation or money is received before goods are shipped, the revenue is either accrued or deferred. Accrued and deferred revenue both relate to the timing of transactions, which are recognized when they occur, not when money changes hands. Allocating revenues to the proper period is a cornerstone of the accrual method of accounting