What are unbilled receivables?

Definition

Unbilled receivables are revenue you have already earned but have not yet invoiced. They are a current asset until you send the bill and they become accounts receivable.

On the books, this is accrued revenue sitting as an asset. Cash has not moved, and the customer has not received an invoice yet.

The only remaining step is billing. Time has passed, the work is done, and the invoice is what still has to go out.

Where it shows up

Balance Sheet: Located in the current assets section.

P&L: Related to revenue that has been earned, but not invoiced.

Cash flow: Decreases in this account, reported cash from operating activities increases.

See also: Accrued Revenue · Revenue Recognition · Invoice

When you look at your Balance Sheet, unbilled receivables sit in current assets, often next to accounts receivable. Some books use a separate line; others keep a clearing account that is reversed when the invoice posts.

A high unbilled balance usually means a lot of finished work is waiting on the billing cycle. A low or zero balance can mean you invoice as you go, or that cutoff was missed and last month's work will hit next month instead.

The profit and loss statement does not list this asset as a line. The related revenue is already on the P&L if you accrued it; invoicing later does not record that revenue a second time.

On the Statement of Cash Flows, this account is still a working-capital item. When it decreases because you invoiced and then collected, reported cash from operating activities increases.

At month-end close, unbilled work is a cutoff item. If the work happened this period, the asset and the revenue belong this period, even if the invoice date is next month.

How it works

You deliver the goods or finish the service in the period. The customer owes you, but your billing calendar has not produced an invoice yet.

At cutoff you debit unbilled receivables and credit revenue. That entry puts the earned work on this month's P&L and parks the amount as a current asset.

When you later send the invoice, you debit accounts receivable and credit unbilled receivables. Revenue does not move again, because it was already recorded.

The invoice is the document that turns the unbilled asset into ordinary AR. From that point the aging, collections, and cash application follow the receivable, not this account.

If you skip the accrual, this month's profit is missing earned work. Next month then looks too high when the late invoice finally posts.

Keep the balance tied to jobs or time entries you can list. An unbilled total with no supporting hours, milestones already complete, or draft invoices is hard to reconcile.

Unbilled receivables cover work that is done and only waiting on a bill. If payment still depends on a remaining performance or a customer sign-off, that is a different asset.

Example

A bookkeeping firm finishes March close work for a client and will send the March invoice on April 5, after the work is done. The March fee is $3,000.

On March 31 the firm records:

Debit: Unbilled receivables $3,000

Credit: Bookkeeping revenue $3,000

Unbilled receivables (an asset) and revenue both go up by $3,000. Cash has not moved, and the client has not received an invoice.

The Balance Sheet is larger on the asset side. The March profit and loss statement now shows $3,000 of fees that were earned in March.

On April 5 the firm sends the invoice:

Debit: Accounts receivable $3,000

Credit: Unbilled receivables $3,000

The unbilled asset falls back to zero, and accounts receivable rises by $3,000. April's P&L does not record the fees again.

Common mix-ups

Unbilled receivables are not accounts receivable. AR starts when the invoice exists; this asset is the earned amount still waiting on that invoice.

Unbilled receivables are not a contract asset. Here the only missing step is sending the bill; a contract asset still depends on something more than the passage of time.

Unbilled receivables are not deferred revenue. Deferred revenue is cash collected before the work; this asset is work completed before the invoice.

Related terms

• Accrued Revenue: Revenue earned in the period but not yet billed or collected.
• Revenue Recognition: The rules for deciding when earned revenue may be recorded.
• Invoice: The document that bills a customer and creates a receivable.
• Contract Asset: A right to payment that depends on something more than the passage of time.
• Progress Billing: Invoicing a customer in stages as work is completed.
• Accounts Receivable: Money customers owe the business for goods or services already delivered.
• Cutoff: The rule that transactions land in the period in which they actually occurred.
• Percentage Of Completion: Recognizing revenue in proportion to how much of a job is finished.