Accrued Revenue Explained

Accrued revenue is an asset account that could be accounts receivable to record revenue that’s earned before cash is received, under the generally accepted accounting principles (GAAP) accrual basis of accounting. GAAP accounting standards, including ASC 606 for revenue recognition in corporate finance, are based on the revenue recognition principle that defines when revenue is earned. 

Accrued income is a kind of accrued revenue that applies to interest income and dividend income. 

Accrued revenue accounting doesn’t reflect cash flow, as does the cash method of accounting. 

In cash transactions for earned revenue, accrual accounting for revenue isn’t necessary, assuming the transaction is recorded at the time of the sale or service. In this case, the accrual accounting method and cash-basis accounting produce the same results for the transaction in the company records for accounting. 

The accrual basis of accounting is broader than accrued revenue. Accrual accounting covers both accrued revenue and accrued expenses. Accrual accounting requires recording expenses in the same accounting period as related revenue, which is based on the GAAP matching principle.

No. Unearned revenue isn’t accrued revenue. Unearned revenue is another name for deferred revenue. To understand accrued revenue vs deferred revenue (unearned revenue), think of them as opposites. For unearned revenue, cash is received in advance of the product delivery or time of use, or service performance. Cash receipts occur after accrued revenue is earned.  

Unearned revenue is a liability account. Accrued revenue is an asset account on the balance sheet.

An unearned revenue example is a SaaS software subscription plan paid on an annual basis, but earned over time and recognized monthly for financial statement purposes. Another example of unearned or deferred revenue is an advance deposit from a customer on a product that will be manufactured and delivered in the future. For example, a business customer places a reservation deposit on a Tesla automobile, with the expected delivery to occur several months later. 

Accrued revenue is usually recorded as a current asset because the time between earning the revenue and receiving the cash is generally less than one year or the company’s operating cycle. If it takes more than a year to receive the cash that’s still considered collectible, then accrued revenue could be a long-term asset instead. 

Accrued revenue in the balance sheet is one side of the double-entry bookkeeping journal entry. The other side of the balancing entry is the revenue account (or accounts) flowing to the income statement. 

For earned sales or service revenue on credit terms, record the accrued revenue as a current asset in the accounts receivable account. When interest or dividend income is earned in a month, but the cash isn’t received until the next month, then make a journal entry to debit an accrued revenue account (an accrued revenue asset) in current assets. 

The credit for sales and services is to a revenue account in the general ledger chart of accounts. In the case of interest income, the credit is to interest income account in the general ledger chart of accounts.  For dividends, the credit is to the dividend income account. 

The first example relates to product sales, where accrued revenue is recorded as a debit to accounts receivable. 

On September 1st, a small business invoices a customer for a total of $25,500 for products shipped on August 31st, on account credit with 2/10 net 30 credit terms. On October 3rd, when closing the books for August, the accountant accrues this earned revenue as August sales revenue on the income statement and accrued revenue, recorded as accounts receivable on the balance sheet as a current asset. 

The second example is accrued revenue for interest income on a loan earned in August for which cash has not yet been received from the payor, but is due in September.