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What is Accrued Revenue?
Accrued Revenue refers to income that has been earned but not yet billed or received by the end of an accounting period. It represents revenue recognized under accrual accounting when a company delivers goods or services but has not yet invoiced the customer.
Definition
Accrued Revenue is an asset representing revenue that has been earned and recorded before the associated cash or invoice transaction occurs.
Key Takeaways
- Recognized when performance obligations are met, not when cash is received.
- Recorded as a current asset on the balance sheet.
- Common in service industries and long-term contracts.
- Ensures compliance with accrual and revenue recognition principles.
- Adjusted once the customer is billed or payment is received.
Understanding Accrued Revenue
Accrued revenue arises from timing differences between earning income and billing for it. Under the accrual method, revenue must be recognized when earned — even if payment has not yet been collected.
For example, a consulting firm that completes work in December but invoices in January must record accrued revenue in December. This ensures the financial statements accurately reflect business performance.
Accrued revenue improves profitability tracking, particularly in industries with recurring contracts or project-based billing.
Formula (If Applicable)
Accrued Revenue = Revenue Earned − Revenue Billed
Example:
If a firm earns $25,000 in services but invoices only $10,000 by period-end, it records $15,000 as accrued revenue.
Real-World Example
A software company provides subscription services for December but bills clients quarterly. It records one month’s worth of service as accrued revenue to align income with service delivery.
Financial institutions like banks also report accrued interest income for loans where interest has been earned but not yet received.
Importance in Business or Economics
Accrued revenue is essential for:
- Accurate revenue recognition and profit measurement.
- Matching income with performance periods.
- Regulatory compliance under GAAP and IFRS.
- Improved forecasting and valuation through more consistent financial data.
Economically, it helps present a realistic picture of productivity and value creation in non-cash accounting systems.
Types or Variations
- Service-Based Accrued Revenue: Income earned for unbilled work.
- Interest Accrued Revenue: Interest earned but not received.
- Project-Based Accrued Revenue: Work completed under percentage-of-completion methods.
- Subscription-Based Revenue: Earned service time before billing cycle ends.
Related Terms
- Accrued Income
- Deferred Revenue
- Accounts Receivable
- Revenue Recognition
- Matching Principle
Sources and Further Reading
- IFRS – IFRS 15: Revenue from Contracts with Customers.
- FASB – ASC 606: Revenue Recognition.
- Investopedia – Accrued Revenue.
- Corporate Finance Institute (CFI) – Revenue Recognition Standards.
Quick Reference
- Purpose: Recognize earned but unbilled income.
- Classification: Current asset.
- Examples: Consulting fees, accrued interest.
- Standard: GAAP/IFRS.
- Adjustment: Reversed after billing.
Frequently Asked Questions (FAQs)
Is accrued revenue the same as accounts receivable?
No — accrued revenue is earned but not billed; accounts receivable are billed but unpaid.
How does accrued revenue differ from deferred revenue?
Accrued revenue is income earned before payment; deferred revenue is payment received before earning.
Is accrued revenue an asset?
Yes, it represents income owed to the company.
Why is accrued revenue important?
It aligns reported income with the period of actual performance.
