Accruals and other adjustments

Accural accounting
Revenues and expenses are not necessarily recorded at the same time when cash changes hands, but when it is earned or incurred.

4 categories of accrual accounting

• Unearned Revenue – increase cash and liabilities for delivery goods and services in the future
• Accrued Revenue – increase account receivable, decrease inventories
• Prepaid Expense – decrease cash and increase an asset (prepaid expense) initially
• Accrued Expense – increase liability for accrued expense

Valuation adjustment
For some assets recorded in market value (not historical cost), valuation adjustments are used. Change in asset values also lead to change in owners’ equity, through gains or losses on the income statement or in other comprehensive income.