What is Deferral?
The adjusting entry that holds cash-received or cash-paid on the balance sheet until it is earned or used up.
Deferral: definition
Deferrals are the mirror image of accruals. An accrual recognizes income or expense before cash moves; a deferral recognizes it after. When a customer prepays for an annual subscription, you hold that cash as deferred revenue (a liability) and release it to revenue month by month. When you prepay a year of insurance, you hold it as a prepaid asset and expense it monthly.
- Deferred revenue: cash received before the service is delivered - a liability
- Prepaid / deferred expense: cash paid before the benefit is consumed - an asset
- Both unwind on a schedule that matches recognition to the period of benefit
- Deferrals are central to ASC 606 revenue recognition for subscriptions and contracts
How Fintra handles it
Fintra creates and amortizes deferral schedules automatically. When you invoice an annual plan, it parks the amount in deferred revenue and releases it monthly; when you record a prepaid, it expenses it over the benefit period. The schedules post to the ledger without hand-built reversing entries, and the balances are reconciled during close.
Worked example
Frequently asked questions
What is the difference between an accrual and a deferral?
An accrual recognizes revenue or expense before the cash moves (you earned it or incurred it but have not been paid / paid yet). A deferral does the opposite: cash has moved, but recognition waits until the revenue is earned or the expense is used. Both exist to put income and cost in the right period.
Is deferred revenue a liability?
Yes. Deferred (unearned) revenue is a liability because you owe the customer future delivery of the product or service they paid for. It moves to earned revenue as you deliver. Fintra tracks the liability balance and releases it on schedule.
How do deferrals relate to ASC 606?
ASC 606 governs when revenue is recognized against performance obligations. Deferrals are the mechanism: amounts collected before the obligation is satisfied sit in deferred revenue and release as the obligation is met. Fintra builds the schedules that make ASC 606 recognition automatic.
Do I have to build deferral schedules by hand?
Not in Fintra. It generates the amortization schedule when the invoice or prepaid is recorded and posts each period automatically, so you avoid the manual reversing entries and spreadsheet trackers that make deferrals error-prone.
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