Question

Which of the following journal entries is created to adjust for a previously recorded deferral?

1) Accrued Revenue
2) Accrued Expense
3) Deferred Revenue
4) Deferred Expense

Answer 1

A previously recorded deferral is adjusted through a journal entry for Deferred Revenue or Deferred Expense, based on the type of deferral.

Step-by-step explanation:

The journal entry created to adjust for a previously recorded deferral is Deferred Revenue or Deferred Expense, depending on the nature of the deferral. When a company receives a payment in advance for goods or services which are to be provided in the future, this is recorded as deferred revenue (also known as unearned revenue). As the company delivers the goods or services, it must recognize this revenue. The adjustment involves decreasing the deferred revenue account and increasing the revenue account. Similarly, if a company has paid expenses in advance, it records this as a deferred expense. Over time, as the benefit of the expense is realized, the company moves the deferred expense into an actual expense account, through an adjusting entry. This reflects the matching principle where expenses are matched with revenues.