What is prepaid and accrual?

Question

Accepted Answer

Prepaid and accrual are accounting methods used to record expenses and revenues in the period they are incurred, rather than when cash is exchanged.

Prepaid expenses are expenses paid in advance but not yet incurred, recorded as assets until they are used up.
Accrual expenses are expenses that have been incurred but not yet paid, recorded as liabilities until they are settled.
Prepaid revenue is revenue received in advance but not yet earned, recorded as liabilities until it is earned.
Accrual revenue is revenue that has been earned but not yet received, recorded as assets until it is collected.
Both methods ensure that expenses and revenues are matched with the period in which they are incurred, providing a more accurate financial picture.

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