What is the term for cash received or paid before the revenue or expense is recognized?

The term for cash received or paid before the revenue or expense is recognized is deferral. In accounting, deferrals refer to situations where the recognition of revenue or expenses is postponed to a future date, even though cash has already been exchanged. For example, when a company receives payment in advance for services to be performed later, that payment is recorded as a liability (unearned revenue) until the service is delivered and the revenue can be recognized. Similarly, when a company pays for an expense in advance, such as rent paid for a future period, that payment is recorded as an asset until the expense is incurred.

The concept of deferral is crucial in adhering to the matching principle in accounting, which aims to match revenues with their corresponding expenses in the period in which they occur, rather than when cash changes hands. This differentiation helps provide a more accurate picture of an organization’s financial performance during a specific time period.