Accrued Revenue

What is accrued revenue?

Accrued revenue is income a business has earned but hasn’t received payment for yet.

In accrual accounting, revenue is recorded when it is earned—not when the cash actually arrives. Financial statements better show a company’s true financial performance when using this method.

Suppose a consulting firm finishes a project in December but the client won’t pay until January. In that case, the revenue belongs in December’s records. Without this adjustment, businesses would underreport their income, and financial statements would look weaker than they are.

Key Points

Accrued revenue reflects earned but unpaid income – Revenue is recorded when earned, not when paid, giving a clearer financial picture.
Accrued revenue is a current asset – accrued revenue is a current asset since it represents unpaid earnings.
Difference between accrued and deferred revenue – Accrued means work is done but not paid for, while deferred means payment is received but work isn’t finished yet.

Accrued revenue example

Accrued revenue is common in industries where services are performed or goods are delivered before payment is received. Some real examples include:

Professional services – A law firm or marketing agency bills clients after work is completed, so revenue accrues before the invoice is paid.
Subscription-based businesses – A company provides annual software licenses. It recognizes revenue monthly even if the customer pays in one lump sum later.
Construction projects – Long-term contracts involve milestone payments but revenue accrues as work is completed along the way.

In these examples, businesses are recognizing revenue as soon as the work is done, not just when the payment arrives. This helps ensure the financial records reflect the true earnings, offering a clearer picture of how the business is doing, even if the cash hasn’t been paid yet.

Accrued revenue journal entry

To record accrued revenue, businesses adjust their journal entries at the end of an accounting period. Let’s say a company earns $5,000 for consulting services in December but won’t receive payment until January.

The journal entry would look like this:

Debit (Increase) Accounts Receivable: $5,000
Credit (Increase) Revenue: $5,000

When the client pays in January, the business updates its books:

Debit (Increase) Cash: $5,000
Credit (Decrease) Accounts Receivable: $5,000

This way, revenue is recorded in the right period, and outstanding payments are tracked.

Is accrued revenue an asset?

Accrued revenue is a current asset because it’s money owed to the business. Even though the cash hasn’t been received yet, it’s still valuable to the company.

Accrued revenue is recorded as accounts receivable on the balance sheet, indicating the expectation of future payment.

Accrued revenue vs. deferred revenue

To get a better sense of your business’s financial health, it’s essential to grasp the difference between accrued and deferred revenue. Accrued revenue is when you’ve earned money but haven’t received it yet, while deferred revenue is when you’ve already been paid but still need to provide the service or product. Let’s break it down in simpler terms.

Feature	Accrued Revenue	Deferred Revenue
Timing	Earned but not yet paid	Paid but not yet earned
Accounting Treatment	Recorded as revenue and accounts receivable	Recorded as a liability until earned
Example	A contractor finishes a job but hasn’t been paid yet	A gym receives annual membership fees upfront but provides services over time