Accruals — Excel guide
Accrual accounting records economic events when they HAPPEN, not when cash moves — the matching principle in action, and the reason 'profitable but broke' is possible.
The four adjusting-entry families
Two deferrals (cash moved first) and two accruals (cash moves later).
| Type | Cash vs. recognition | Example |
|---|---|---|
| Prepaid expense | Paid now, expensed later | 12 months of insurance |
| Unearned revenue | Collected now, earned later | Annual subscription received |
| Accrued expense | Incurred now, paid later | Salaries earned, unpaid |
| Accrued revenue | Earned now, billed later | Work done, not invoiced |
Matching principle
Expenses belong in the same period as the revenue they helped earn — estimated warranty costs are booked WITH this year's sales, not when units come back for repair.
ASC 606 in one line
Revenue is recognized when a performance obligation is satisfied — control transfers to the customer — not when the contract signs, the invoice sends, or the cash lands.
Deferred taxes
Book income and tax income use different rules (depreciation timing is the classic), so tax expense and tax paid diverge — the gap accumulates as deferred tax assets/liabilities that unwind over time.