Accrued Revenue

Under accrual accounting, revenue is recorded when it is earned. If work has been done but the invoice has not yet been sent, the revenue still belongs in the current period. It is recorded as accrued revenue, with a matching asset on the balance sheet.

For example, a consulting firm works on a project throughout December but bills the client in January. If 8,000 worth of work was completed in December, the firm records 8,000 of revenue in December and an 8,000 accrued revenue asset. When the invoice is issued in January, the asset is moved to accounts receivable, and when the client pays, it becomes cash.

Interest earned on savings or loans but not yet received is another common example.

Accrued revenue makes sure income is shown in the period when the work was done, giving a more accurate picture of performance. Because it is based on estimates of work completed, auditors often check it carefully to make sure revenue is not being recorded too early.