Section 5 - Correcting Current Period Deferral Errors

Question 1

What is a deferral error?

Answer 1

A deferral error takes place when:

1. A journal entry to defer expenses or revenue has been omitted.
2. Too little expense or revenue was deferred.
3. Too much expense or revenue was deferred.

Question 2

An error of deferred revenue takes place when

Answer 2

1. A journal entry to defer revenue has been omitted.
2. Too little revenue was deferred.
3. Too much revenue was deferred.

Question 3

How is a deferral error corrected if it was discovered after the books have been closed?

Answer 3

If a deferral error has been discovered after the books were closed, because Revenue and Expense accounts from the prior year have been closed, a Prior Period Adjustment to Retained Earnings or the Capital account is required to correct the error.

Question 4

If a deferral error is discovered before the books are closed, how does the company correct the error?

Answer 4

Because the books have not yet been closed, current period errors are easily corrected by adjusting the inaccurate account balances with a journal entry.

Question 5

Deferred Revenue is ..

Answer 5

A liability recognized when cash is received in advance before the service is provided or before the goods are shipped to customers

The recognition of revenue is deferred, delayed until earned in the future.

Question 6

An error of deferred expenses takes place when

Answer 6

1. A journal entry to defer expenses has been omitted.
2. Too little expense was deferred.
3. Too much expense was deferred.

Question 7

The ____________ entry is recorded when there is an exchange of cash.

Answer 7

Transactional entry.

The transactional entry is used to record the exchange of cash when dealing with Deferrals.

Deferred Revenue - Cash received in advance (Cash increase)

Deferred Expense - Cash paid in advance (Cash Decrease)