<P> For example, goods supplied by a vendor in one accounting period, but paying for them in a later period results in an accrued expense that prevents a fictitious increase in the receiving company's value equal to the increase in its inventory (assets) by the cost of the goods received, but unpaid . Without such accrued expense, a sale of such goods in the period they were supplied would cause that the unpaid inventory (recognized as an expense fictitiously incurred) would effectively offset the sale proceeds (revenue) resulting in a fictitious profit in the period of sale, and in a fictitious loss in the latter period of payment, both equal to the cost of goods sold . </P> <P> Period costs, such as office salaries or selling expenses, are immediately recognized as expenses (and offset against revenues of the accounting period) also when employees are paid in the next period . Unpaid period costs are accrued expenses (liabilities) to avoid such costs (as expenses fictitiously incurred) to offset period revenues that would result in a fictitious profit . An example is a commission earned at the moment of sale (or delivery) by a sales representative who is compensated at the end of the following week, in the next accounting period . The company recognizes the commission as an expense incurred immediately in its current income statement to match the sale proceeds (revenue), so the commission is also added to accrued expenses in the sale period to prevent it from otherwise becoming a fictitious profit, and it is deducted from accrued expenses in the next period to prevent it from otherwise becoming a fictitious loss, when the rep is compensated . </P> <P> A Deferred expense (prepaid expenses or prepayment) is an asset used to costs paid out and not recognized as expenses according to the matching principle . </P> <P> For example, when the accounting periods are monthly, an 11 / 12 portion of an annually paid insurance cost is added to prepaid expenses, which are decreased by 1 / 12 of the cost in each subsequent period when the same fraction is recognized as an expense, rather than all in the month in which such cost is billed . The not - yet - recognized portion of such costs remains as prepayments (assets) to prevent such cost from turning into a fictitious loss in the monthly period it is billed, and into a fictitious profit in any other monthly period . </P>

Which method of financial reporting does not recognize the impact of changes in purchasing power