Deferred Revenue and Accrued Expenses
Timing Differences in Recognition
Sometimes cash is received before revenue is earned or expenses are incurred before payment. These timing differences create liabilities or accrued obligations that must be adjusted under accrual accounting.
Note
Deferred revenue is a liability because the company still owes goods or services to customers.
Summary
Accrual accounting records obligations and rights when they arise, not when cash changes hands.