Company X sells $10,000 of widgets on August 8, 2000 (recognized). Company Z pays Company X $10,000 for widgets on October 25, 2000 $10,000 (cash received).
Example 2: Deferrals occur when adjustments are made to data previously recorded in the accounts. Such adjustments occur in asset and liability accounts to expenses and revenue accounts, respectively.
Prepaid Insurance and prepaid rent are examples of assets until paid up (paid in advance); then they become expenses. These same amounts would be noted in the t accounts to prepaid insurance/insurance expense and prepaid rent/rental expense.
Two Journal Entries should occur:
JE for August 8, 2000 Debit Credit