A deferral begins when cash moves before the related expense or revenue belongs in income. Prepaid insurance and supplies remain assets until used. Customer advances remain liabilities until the business performs the promised work. At period-end, transfer only the used or earned portion into the income statement.
Check the balance already recorded before calculating the adjustment. Under the asset method, an insurance payment starts in Prepaid Insurance and the expired part moves to expense. Under the expense method, the whole payment starts as expense and the unused part is restored to an asset. Both methods should produce the same ending balances. A physical supplies count supports the amount remaining, not the amount consumed.