Distinguish between accruals and deferrals with a concise description.

• A. Accruals record revenues and expenses after cash is exchanged; Deferrals recognize them with a time delay.
• B. Accruals postpone recognition of revenues and expenses; Deferrals recognize them when cash is received.
• C. Accruals record revenues and expenses before cash; Deferrals postpone recognition of prepayments until later.
• D. Accruals and deferrals are identical concepts.

Answer: (C)

Understanding when revenues and expenses are recognized relative to cash is what distinguishes accruals from deferrals. In accrual accounting, revenues are recorded when earned and expenses are recorded when incurred, even if cash hasn’t moved yet. This means accruals happen before cash is exchanged—for example, providing a service now and getting paid later, or incurring a cost now but paying it in a future period.

Deferrals, on the other hand, involve cash changing hands before the related revenue or expense is recognized. The recognition is postponed to a later period. Examples include prepaid expenses (paying now for benefits that extend over multiple periods) and unearned revenue (receiving cash now for goods or services to be delivered later).

So the best way to describe the distinction is that accruals recognize revenues and expenses before cash is exchanged, while deferrals postpone recognition until a later period after cash has been received or paid. The other descriptions reverse or mix up the timing, which is why they’re not correct.