Which is an example of an accrual?

• A. Accrued revenue
• B. Prepaid insurance
• C. Unearned revenue
• D. Depreciation expense

Answer: (A)

In accrual accounting, an accrual records revenue or expense when it is earned or incurred, regardless of when cash is exchanged. An example of this is accrued revenue: revenue that has been earned by delivering goods or services but hasn’t yet been billed or cash hasn’t been collected. This is recorded as an asset and revenue in the same period, typically with a journal entry like Debit Accounts Receivable, Credit Revenue. When cash is eventually received, you would reverse the receivable and increase cash.

The other options illustrate deferrals or non-cash allocations rather than accruals. Prepaid insurance is paying for coverage in advance, creating a prepaid asset that is expensed over time. Unearned revenue is cash received before earning the revenue, creating a liability until the service is performed. Depreciation expense is a non-cash allocation of an asset’s cost over its useful life, not an accrual of revenue or expense.