Deferrals: prepaid expenses and unearned revenue
Objective: Record deferral adjustments with exact calculations.
Recommended first: Why adjusting entries exist
A deferral postpones recognition. Prepaid expenses are recognized as they are used; unearned revenue is recognized as it is earned. Calculate the used or earned portion precisely: monthly amount × months elapsed, or a count for supplies.
- Prepaid amount ÷ months covered = monthly expense.
- Supplies used = balance − count on hand.
- Unearned earned = total × portion delivered.
Deferral calculations should be shown clearly so a reviewer can check them: monthly amount, months elapsed, and the result. For supplies, the count is the evidence; the expense is the difference between the recorded balance and the count. For unearned revenue, use the share actually delivered.
Check your work
- Is the monthly or per-unit amount correct?
- Did you expense only the used portion?
- Does the remaining asset or liability make sense?
$2,400 prepaid tutoring; 50% delivered.
| Account | Debit | Credit |
|---|---|---|
| Unearned Revenue | $1,200.00 | |
| Service Revenue | $1,200.00 |
Common mistakes
✗ Expensing the remaining balance instead of the used portion.
✓ Expense only what was used.
Guided practice
Use hints freely here.
Item 1 of 1
Earn part of unearned revenue
Maple Street Tutoring received $3,000.00 in advance for a tutoring package and credited Unearned Revenue. By Mar 31, 2026, 75% of the sessions have been delivered. Record the adjustment.
Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 6
Earn one month of annual memberships
In January, 13 members each prepaid $900.00 for a 12-month membership at Peak Form Fitness Studio, credited to Unearned Revenue. Record the revenue earned for March at Mar 31, 2026.
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Key terms
- Deferral
- Postponing recognition of a cash movement already recorded.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.