Accrued Revenue Guide: How To Record Accrued Revenue

If you have a services business, you likely invoice clients for your completed work, which they pay within your agreed-upon payment terms. But this creates an accounting conundrum: How do you account for accrued revenue—money you’ve earned but haven’t received yet? If you use the accrual method of accounting, revenue is recorded in your records when you deliver goods or services rather than when you receive payment.

Accrued revenue is used by any business that extends credit to customers, whether for goods or services, to recognize completed work and pending payment. 

Here you’ll learn how accrued revenue works, the four accounting principals to make it work, and how to record it, so you can accurately reflect your company’s financial health and performance.

What is accrued revenue?

Accrued revenue, sometimes called unbilled revenue, is money you’ve earned but not yet received. Under generally accepted accounting principles (GAAP), accrued revenue recognition happens when goods are delivered or services provided to the customer, no matter when you are paid.

Accrued revenue is recorded on a company’s income statement and balance sheet as an asset, in your accounts receivable. That’s because you have a contract to receive future payment. Once a customer pays, the company adjusts its balance sheet to show an increase in cash and a reduction in accrued revenue. The income statement isn’t affected because the revenue has already been recognized.

Accrued revenue gives you—and anyone evaluating your business—a true picture of your business’s financial performance, even before payment arrives. This matters whether you’re applying for a loan, attracting investors or simply tracking your own growth. Without it, results can swing wildly from period to period, obscuring your real financial trajectory. It also captures a company’s earnings during a specific period to align it with expenses incurred to generate that revenue, known as the matching principle.

Accrued revenue vs. deferred revenue

Deferred revenue, also called unearned revenue, is the opposite of accrued revenue. It is cash a company receives in advance for goods or services it will provide at a later date. Deferred revenue is entered on the balance sheet as a current liability because the company is obliged to provide the goods or services later.

Principles of accrued revenue

• Revenue recognition
• Matching principle
• Asset creation
• Adjustment and recognition of cash

Properly recording accrued revenue depends on following four accounting principles used in the accrual accounting method.

Revenue recognition

The revenue recognition principle means revenue is recorded in the accounting period in which it was earned—when goods or services are provided. The revenue recognition process guides how and when a company records transactions as revenue. The timing of revenue recognition can affect a company’s key performance indicators (KPIs) in a given period, such as total revenue, net income, and profit margins.

Matching principle

The matching principle states that revenue and its related expenses are recorded in the period in which they occurred. 

For example, Company A delivers $10 million of goods in Q1, and incurs $8 million of expenses to make and ship the goods. It matches by recognizing all the revenue and expenses in its Q1 income statement, even though it doesn’t expect to receive payments from the customer until Q2.

Asset creation

When a company records revenue on the income statement, but is awaiting payment in a later period, it reports the amount due as accrued revenue in accounts receivable. The amount is listed as an asset on its balance sheet. Creation of an asset ensures the company keeps track of its current value and maintains an accurate income statement.

When you record revenue as an asset, you capture the true value of your business at any moment. This matters when you're seeking funding, selling your business, or simply understanding whether you can afford a hire or inventory purchase.

Adjustment and recognition of cash

When a customer pays, the company adjusts its balance sheet to recognize the cash payment and simultaneously reduce accrued revenue in the same accounting period. 

For example, Company A above has a $10 million accrued revenue asset account on its balance sheet at the end of Q1. When it gets paid in Q2, it increases its cash asset account by $10 million and reduces the accrued revenue asset account by $10 million.

How to record accrued revenue

Recording accrued revenue uses debits and credits, and double-entry bookkeeping. Entries typically involve debiting an asset account and crediting an income or revenue account by equal amounts. The double-entry bookkeeping system lets a business track money coming in and going out, keeping debits and credits in balance.

Here’s an example of how accrued revenue is recorded in bookkeeping entries, and how it is reflected in a business’s three financial statements.

Here’s how these entries look in practice. A hypothetical web design business has a $5,000 contract to provide services to an ecommerce retailer. The work was completed during the business’s first quarter in March. It invoices the retailer during the second quarter in April, expecting payment in May. Its bookkeeping entries would look like this:

The $5,000 debit increases the accrued revenue asset on the balance sheet, while the $5,000 credit recognizes the revenue on the income statement. 

Later, when payment is received, the business will make an adjusting journal entry in its records as follows:

The $5,000 debit increases the cash asset on the balance sheet, while the $5,000 credit decreases the accrued revenue asset, reflecting the customer’s payment.

The table below shows how accrued revenue is reflected in the three key financial statements across the two quarters.

Accrued revenue examples

• Interest income
• Services rendered income
• Subscription revenue
• Rental income
• Long-term contract revenue
• Advertising revenue
• Legal or consulting service revenue
• Royalty payments
• Shipping or freight charges

Accounting for accrued revenue spans almost every industry, from dog walking to custom clothing. The most common types of accrued revenue include:

Interest income

Banks and financial service businesses often accrue interest income that they have earned but haven’t received. They earn this from lending or interest income on savings accounts and investments such as bonds.

Services rendered income

Services businesses, such as consulting firms, may accrue revenue for services they performed but haven’t yet billed the client. For example, a web design business’s billable work for an ecommerce retailer. Or a dog walker who bills clients for the total number of walks at the end of the month. 

Subscription revenue

Companies offering subscription-based services, such as streaming media and entertainment content or software as a service (SaaS), often recognize revenue periodically. The portion of the subscription a customer has used but not yet paid for is accrued revenue. 

Among SaaS businesses, accrued revenue can occur when customers upgrade to a more expensive subscription tier. It can also happen when they extra services during their subscription period, but have yet to make a payment.

Rental income

Real estate companies or property managers can accrue income from tenants. A tenant may owe rent for a particular period, but payment is paid after the end of the accounting period.

Long-term contract revenue

Construction companies or contractors with long-term projects may recognize revenue as they work, even if they haven’t received payment yet. 

Two ways of accounting for accrued revenue on long-term contracts include milestones and the percentage-of-completion method. For example, an office high-rise developer might receive milestone payments when it lays the building foundation, or when it finishes the steel framework. Or an engineering firm might recognize 50% of a project’s expected revenue after incurring 50% of the expenses for the task.

Advertising revenue

Media companies or publishers might accrue revenue for advertising services they’ve provided but haven’t yet billed their clients. Examples include ad campaigns running over extended periods or seasons.

Legal or consulting service revenue

Law firms or consultants often accrue revenue for legal or consulting services, such as ongoing cases or projects that extend beyond the end of a billing period.

Royalty payments

Creative workers, authors, and holders of patents, copyrights, or trademarks may accrue revenue for royalty payments for the use of their intellectual property, based on contracts or licensing agreements.

Shipping or freight charges

Shippers may accrue revenue for services provided but not yet billed to customers, or for goods in transit.