What is accrued revenue?

Definition

Accrued revenue is earned work that still has no invoice and still has no cash. On the books, this is a current asset, not a checking-account balance and not a billed receivable.

A plumbing company that finishes a water-heater swap on the last day of the month has already earned the job. The bill can wait until next week without moving the earning into next month.

Cash-basis books often wait until the customer pays. Accrual books record the finished job now, and they park the unbilled piece as an asset until the invoice goes out.

This line is earned, unbilled sales. It is not the later bank deposit.

Where it shows up

Balance Sheet: Located in the current assets section.

P&L: Related to work earned this period that is not yet on an invoice.

See also: Unbilled Receivables · Revenue Recognition · Adjusting Journal Entry

When you look at your Balance Sheet, this asset sits in current assets, often next to accounts receivable or on a line labeled unbilled receivables. The amount is work already done that has not yet been billed.

When the balance is high, finished jobs are waiting on the billing cycle. When it is low or zero, invoices go out as the work is finished, or the last days of the month were never accrued.

The profit and loss statement does not list this asset as a standing line. The related revenue is already on the Income Statement if the earning was recorded this period.

On the Statement of Cash Flows, finishing the job without billing it does not raise cash. Cash from operating activities rises later, when the job is collected.

How it works

The plumber finishes the call in this period. The customer owes the shop, but the billing calendar has not produced an invoice yet.

At period end the bookkeeper debits this asset and credits revenue. That entry puts the earned job on this month's P&L and holds the amount as a current asset.

When the invoice later goes out, the shop debits accounts receivable and credits this asset. Revenue does not move again, because it was already recorded when the work was earned.

The invoice is what turns the unbilled asset into ordinary AR. From that point the aging and the collection follow the receivable, not this line.

If the shop skips the accrual, this month's profit is missing finished work. Next month then looks too high when the late invoice finally posts as a sale.

Keep the balance tied to job tickets, time sheets, or completed calls you can list. A total with no supporting work is hard to prove at close.

This asset covers work that is done and only waiting on a bill. If payment still depends on a remaining visit or a customer sign-off, that may be a contract asset instead.

Do not treat a customer prepayment as this line. Cash collected before the work is deferred revenue, which is a liability, not an asset.

Stay with the earned, unbilled job when you read the month. The bank balance explains what was collected, and this line explains what was finished without a bill.

Cash-basis books often never show this account. Income waits for the check.

A close checklist should include open jobs whose work is done. Those jobs belong on this period's P&L even when the invoice date is next month.

Example

A plumbing company finishes a $1,800 water-heater install on March 31 and will send the invoice on April 2. The homeowner has not been billed and has not paid.

The March close records:

Debit: Accrued revenue $1,800

Credit: Plumbing revenue $1,800

The asset and revenue both go up by $1,800. Cash has not moved.

March's Income Statement includes the $1,800. The Balance Sheet holds the same amount in current assets until the bill goes out.

On April 2 the shop invoices and moves the balance into accounts receivable. April's P&L does not record the job again.

When the homeowner pays later, cash rises and accounts receivable falls. That collection is not a second $1,800 of revenue.

Common mix-ups

Accrued revenue is not cash. Cash is money already in the bank, and this line is earned work that has not been billed or collected.

Accrued revenue is not accounts receivable. AR starts when the invoice exists, and this asset is the earned amount still waiting on that invoice.

Accrued revenue is not deferred revenue. Deferred revenue is cash collected before the work, and this line is work finished before the bill.

Related terms

• Unbilled Receivables: Revenue earned but not yet invoiced to the customer.
• Revenue Recognition: The rules for deciding when earned revenue may be recorded.
• Adjusting Journal Entry: An entry made at period end to record accruals, deferrals, and corrections.
• Accrual: Recording an expense or revenue when it happens rather than when cash moves.
• Cutoff: The rule that transactions land in the period in which they actually occurred.
• Accounts Receivable: Money customers owe the business for goods or services already delivered.
• Matching Principle: Recording expenses in the same period as the revenue they helped produce.
• Progress Billing: Invoicing a customer in stages as work is completed.