There are two methods of accounting:

Cash accounting: records transactions only when cash is exchanged

This method is not typically acceptable

Accrual accounting: records transactions based on whether the event is likely to occur (probable) and the cost can be estimated (reliably measured)

Using accrual accounting, a number of assets and liabilities are generated:

Accounts receivable:

Amounts owed to you from another company or individual

Accounts payable:

Amounts owed by you to another company or individual

Prepaid expenses:

Payments made in advance of when the expense will be utilized

Unearned revenues:

Payments received in advance of when the goods/services will be provided

Accrued liabilities:

Liabilities that have been incurred but have not yet been invoiced by the supplier

                                                    Deferred Items 

Amounts previously recorded in an asset account are transferred to an expense account, or amounts previously recorded in a liability account are transferred to a revenue account

                                                  Accrued Items

Amounts not previously recorded are entered into an asset account and a revenue account or a liability account and an expense account.