Accrued revenue is income a business has earned but has not yet billed or collected. It normally appears as a current asset on the balance sheet because the company has performed the work and has a right to receive payment. When the invoice is later issued, the accrued revenue is transferred to accounts receivable.
Why Accrued Revenue Exists
Under accrual accounting, revenue is recognized when it is earned rather than only when cash arrives. Billing schedules do not always line up with month-end. A consultant may complete work in March but invoice in April, or a contractor may earn revenue based on progress before the next scheduled billing date.
A Simple Example
Suppose a company completes $6,000 of services by March 31 but cannot invoice until April 5. At month-end, it records $6,000 of accrued revenue and $6,000 of service revenue. When the invoice is created, accrued revenue decreases and accounts receivable increases. Cash changes only when the customer pays.
Accrued Revenue vs. Accounts Receivable
Accounts receivable usually represents invoices already sent to customers. Accrued revenue represents earned amounts that have not yet reached the normal billing stage. Both are assets, but accrued revenue often depends more heavily on estimates, contracts, time records, or project-progress calculations.
Accrued Revenue vs. Deferred Revenue
These items move in opposite directions. Accrued revenue means the business performed first and will bill or collect later. Deferred revenue means the customer paid first and the business still owes the product or service. Accrued revenue is an asset; deferred revenue is a liability.
Common Small-Business Examples
Professional services billed after month-end, interest earned but not yet received, project milestones awaiting approval, commissions earned before a statement is issued, and utility usage billed after the service period can all create accrued revenue.
Use Reliable Supporting Records
Support each accrual with contracts, approved time, delivery records, milestone calculations, interest schedules, or other evidence. Avoid using accrued revenue merely to reach a sales target. The amount should reflect work actually completed and a reasonable expectation of payment.
Reverse or Clear the Accrual Promptly
When the actual invoice is created, clear the accrued balance so revenue is not counted twice. Many accounting systems use reversing entries at the beginning of the next month. Reconcile the accrued-revenue schedule with the general ledger and investigate old balances that remain after billing.
How It Affects Cash Flow
Accrued revenue increases reported profit without increasing cash. Rapid growth in this account can therefore make income look strong while liquidity weakens. Compare it with billing speed, accounts-receivable aging, and collections.
What Owners Should Watch
A normal accrual may simply reflect the billing cycle. A growing balance may signal delayed invoicing, disputed milestones, incomplete paperwork, or aggressive revenue recognition. Review large entries individually and ask when each amount will become an invoice and when cash is expected.
What Owners Should Take Away
Accrued revenue keeps earned income in the correct reporting period, but it is not cash and it is not yet an invoice. Accurate support, prompt billing, and regular reconciliation prevent it from overstating the financial strength of the business.
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