Accrual journal entries record revenue and expenses when they’re earned or incurred, using matched debit and credit entries. The four most common types are accounts receivable, accrued expenses, prepaid expenses, and deferred revenue.
Understanding accrual accounting conceptually is one thing. Actually recording the journal entries is where a lot of business owners and even new bookkeepers get stuck.
Every accrual transaction follows the same basic rule: it needs two matched entries, a debit and a credit, that keep the accounting equation in balance. The tricky part isn’t the math. It’s knowing which account to debit and which to credit for each type of transaction.
Let’s walk through the four journal entries that come up most often under accrual accounting, with the actual debit and credit lines for each one.
Key Takeaways: Accrual Accounting Journal Entries
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Every accrual journal entry requires a matched debit and credit that keep the books in balance.
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Accounts receivable entries record revenue earned before payment is received.
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Accrued expense entries record costs incurred before the bill is paid.
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Prepaid expenses and deferred revenue both require monthly adjusting entries to spread the amount across the period it actually covers.
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Recording revenue too early and skipping adjusting entries are the two most common mistakes small businesses make.
Common Accrual Journal Entries
| Entry Type | What It Records | Debit | Credit |
| Accounts receivable | Revenue earned, not yet paid | Accounts Receivable | Revenue |
| Accrued expense | Cost incurred, not yet paid | Expense | Accrued Liabilities |
| Prepaid expense | Cost paid in advance, used over time | Prepaid Expense (asset) | Cash |
| Deferred revenue | Payment received, work not yet done | Cash | Deferred Revenue (liability) |
| Adjusting entry | Recognizes prepaid or deferred amounts as time passes | Expense or Revenue | Prepaid Expense or Deferred Revenue |
The Basics Before You Start
Every journal entry has at least one debit and one credit, and the total dollar amount on each side always has to match. Debits increase asset and expense accounts and decrease liability and revenue accounts. Credits do the opposite.
That’s the whole framework. The four entry types below are really just that same rule applied to four different situations.
Recording Revenue You’ve Earned but Not Yet Received
This is the classic accrual scenario: you’ve delivered the work, but the client hasn’t paid yet.
Example: A consulting firm completes a $5,000 project on March 28th. The client is invoiced but doesn’t pay until April.
Journal entry on March 28th (when the work is completed):
- Debit: Accounts Receivable — $5,000
- Credit: Revenue — $5,000
Journal entry in April (when payment is received):
- Debit: Cash — $5,000
- Credit: Accounts Receivable — $5,000
The revenue hits the books in March, when it was earned. The April entry just clears the receivable once cash actually arrives, it doesn’t record new revenue.
Recording an Expense You’ve Incurred but Not Yet Paid
This works the same way in reverse. A cost is incurred before the bill actually gets paid.
Example: A business receives a $2,000 utility bill on March 30th for service used in March, but doesn’t pay it until April 10th.
Journal entry on March 30th (when the expense is incurred):
- Debit: Utility Expense — $2,000
- Credit: Accrued Liabilities — $2,000
Journal entry on April 10th (when the bill is paid):
- Debit: Accrued Liabilities — $2,000
- Credit: Cash — $2,000
The expense lands in March’s books, matching the month the utilities were actually used, even though the cash didn’t leave the account until April.
Not Confident Your Journal Entries Are Recorded Correctly?
Recording a Prepaid Expense
Prepaid expenses work differently. Here, cash goes out before the expense is actually used up, and it needs to be spread across the period it covers.
Example: A business pays $1,200 in January for a full year of insurance coverage.
Journal entry when the payment is made:
- Debit: Prepaid Insurance (asset) — $1,200
- Credit: Cash — $1,200
Adjusting entry each month, for 12 months:
- Debit: Insurance Expense — $100
- Credit: Prepaid Insurance — $100
Instead of recording the full $1,200 as an expense in January, this spreads $100 a month across the year the coverage actually applies to. That’s the accrual method’s matching principle in action, applied at the entry level.
Recording Deferred (Unearned) Revenue
Deferred revenue is the mirror image of a prepaid expense. It happens when a customer pays in advance, before the business has actually delivered the product or service.
Example: A business receives $6,000 in January for a 6-month service contract.
Journal entry when payment is received:
- Debit: Cash — $6,000
- Credit: Deferred Revenue (liability) — $6,000
Adjusting entry each month, for 6 months, as the service is delivered:
- Debit: Deferred Revenue — $1,000
- Credit: Revenue — $1,000
Until the service is actually delivered, that $6,000 sits on the books as a liability, not revenue, because the business technically still owes the client the work.
Common Mistakes to Avoid
A few errors come up repeatedly when businesses start recording accrual entries on their own.
Recording revenue too early is one of the most common. Booking income the moment an invoice is sent, rather than when the work is actually completed, overstates revenue for the period. The trigger should always be the work or delivery, not the paperwork.
Forgetting adjusting entries is another frequent gap. Prepaid expenses and deferred revenue both require monthly adjustments to move the right amount from the balance sheet to the income statement. Skipping these entries means the prepaid or deferred balance never actually clears, and the expense or revenue never shows up where it should.
Mismatched debits and credits are a basic but easy mistake, especially when entries are made manually rather than through accounting software. Every entry needs to balance, and a business that finds its books out of balance at month-end usually has one of these entries recorded incorrectly.
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