Accrual accounting

Asset + Expense = Capital + Revenue + Liability(借贷平衡)

1. Four important elements of accural accounting

1. Accrued Revenue(应收账款)::

• Record revenue, but the cash is yet to be received
• Account receivable
• Asset!
• Happen: Asset(accured revenue) +, Equity +, Revenue +
• Reverse: Asset(cash) +, Asset(accured revenue) -

2. Unearned Revenue(预收款)::

• Received the cash, but I haven’t provided the service yet
• Liability!
• Happen: Asset +, Liability +
• Reverse: Liability -, Equity +, Revenue +

3. Accrued Expense(应计费用)::

• I should pay, but I havn’t paid yet
• Liability!
• Happen: Liability(Accrued Expense) +, Equity -(Because income is the same, but expense increase), Expense +
• Reverse: Liability(Accrued Expense) -, Asset(Cash) -

4. Prepaid Expense(预付款)::

• I have paid, but I havn’t enjoyed the service
• Asset!
• Happen: Asset(Cash) -, Asset(Prepaid Expense) +
• Reverse: Asset(Prepaid Expense) -, Equity -, Expense +
• Equity = Capital + Revenue - Expense
• When the Revenue is the same, but Expense increases, then the Equity will decreases