An accrual in accounting results when revenue or expenses are recognized before the exchange of cash. It represents transactions where goods or services have been delivered or received, but payment has not yet occurred. For example, an accrued expense happens when a company incurs an expense but hasn't paid it yet, and an accrued revenue happens when a company earns revenue but hasn't received payment. A deferral results when cash is exchanged before the related revenue or expense is recognized. Deferrals delay the recognition of revenue or expenses until a later time, aligning the financial reporting with when goods or services are actually delivered or consumed. For example:

• A deferred expense (or prepaid expense) occurs when a company pays for goods or services in advance but recognizes the expense later, such as prepaid insurance.
• A deferred revenue (or unearned revenue) occurs when a company receives payment in advance for services or goods it will deliver in the future, recognizing the revenue only after delivery.

Thus:

• An accrual results when revenue is recognized before cash is received or an expense is recognized before cash is paid.
• A deferral results when cash is received or paid before the corresponding revenue or expense is recognized.

This approach follows the accrual basis of accounting principles, ensuring that revenues and expenses are matched to the periods in which they are earned or incurred, rather than when cash transactions occur.