Accounting: Cash Basis and Accrual Basis
In accounting, there are two approaches to recognizing revenues and expenses: the cash basis and the accrual basis.
When the cash basis is used, revenues are recorded when cash is received and expenses are recorded when cash is paid.
When the accrual basis is used, revenues are recorded when earned and expenses are recorded when incurred. Most businesses are required to use the accrual method.
An accrued revenue is when revenue is earned before cash is received. An accrued expense is when an expense is incurred before it is paid.
A deferred revenue is when cash is received before revenue is earned. A deferred expense is when cash is paid before an expense is incurred.