Accrued revenue, also known as accrued income or unbilled revenue, is a financial concept that refers to revenue earned by a business but not yet received in cash or recognized in the financial statements. It represents income that a company has earned through its normal operating activities but has not yet been realized as actual cash inflow. Accrued revenue is recorded as a current asset on the balance sheet until it is collected.

How Accured Revenue Works

Recognition: Accrued revenue is recognized when it is earned, which means that the company has fulfilled its obligations or provided the goods or services to the customer, but the payment is yet to be received.

Accounting: To account for accrued revenue, a company typically records it as a journal entry, debiting an asset account (usually “Accounts Receivable” or “Accrued Revenue”) and crediting a revenue account. This reflects that the revenue has been earned and is owed to the company but has not been received in cash.

Examples: Accrued revenue can arise in various business situations. Some common examples include:

• Service contracts: A company provides services under a contract, and the customer is billed at the end of the contract term.
• Interest income: A financial institution earns interest on loans, but the interest is not due or received until a later date.
• Subscription services: Companies offering subscription-based products or services may recognize revenue before they bill the customer.

Reporting: Accrued revenue is reported on the balance sheet as a current asset because it is expected to be converted into cash within one year. On the income statement, it is reflected as revenue, which increases the company’s reported sales or revenue.

Reversal: Once the accrued revenue is collected or the payment is received, the company will reverse the initial journal entry by debiting the cash account and crediting the Accounts Receivable or Accrued Revenue account.

Accrued revenue is an important concept in accrual accounting, which is the accounting method that recognizes revenue when it is earned and expenses when they are incurred rather than when cash changes hands. This method provides a more accurate picture of a company’s financial performance by matching revenue and expenses to the periods in which they are incurred, regardless of when the cash is received or paid.