- What is accrued revenue?
- How to record an accrued revenue journal entry
- Accrued revenue journal entry examples
- How does accrued revenue impact financial statements?
- Accrued revenue vs. accounts receivable
- Accrued revenue vs. deferred revenue
- When to record adjusting entries for accrued revenue
- Close your books faster with Ramp's AI coding, syncing, and reconciling alongside you
Accrued revenue is income you've earned but haven't yet received payment for. Many businesses rely on accrued revenue entries, especially in industries like consulting, SaaS, and professional services, where work is completed before invoices are sent. Service-based businesses contribute a significant amount to the US GDP, highlighting the widespread need for accurate revenue recognition.
What is accrued revenue?
Accrued revenue is income you've earned by delivering goods or services but haven't yet billed or received payment for. It's recorded when you deliver a product or service before issuing an invoice or receiving cash. This accounting method ensures revenue is recognized when it's earned, not when payment arrives.
- Accrued revenue meaning: Revenue earned but not yet invoiced or collected
- When it occurs: Service delivered or goods provided before the billing cycle ends
- Why it matters: Matches revenue to the period work was performed, following the accrual accounting principle
Unlike cash-based accounting, which only records revenue when money is received, accrual accounting follows the revenue recognition principle. This principle, enforced by generally accepted accounting principles (GAAP), helps you provide a clearer picture of your company's financial health. Larger companies must use the accrual accounting method if their average gross receipts exceed $25 million over the past 3 years.
Accrued revenue is common in industries with delayed billing cycles. For example, SaaS companies often charge customers at the end of a billing period, and construction firms complete project phases before invoicing.
How to record an accrued revenue journal entry
Accrued revenue is recorded at the end of an accounting period, typically monthly, quarterly, or annually, depending on your reporting cycle. If you use accrual bookkeeping, you must ensure all earned revenue is properly recognized before closing your books. This is especially important if you have long billing cycles or delayed payments, common in consulting, SaaS, and professional services.
Step 1: Identify earned but unbilled revenue
The first step is determining whether you've earned revenue that you haven't yet billed. This applies when you've provided goods or services but haven't yet invoiced the customer. Common triggers include month-end close, quarter-end reporting, and project milestone completions.
You need to recognize revenue when it's earned, even if you haven't received the cash. Review open contracts, completed deliverables, and service logs to identify any unbilled amounts.
Step 2: Calculate the revenue accrual amount
Next, calculate the exact dollar amount to accrue. How you calculate depends on your billing structure:
- Fixed-fee contracts: Determine the portion of work completed during the period relative to the total contract value
- Hourly or time-based billing: Multiply hours worked by the contracted rate
- Percentage-of-completion (long-term projects): Calculate the percentage of the project completed and apply it to the total contract price
Accurate calculation prevents overstating or understating revenue, both of which can create compliance issues down the line.
Step 3: Debit accrued revenue and credit the revenue account
Once you've calculated the amount, record the journal entry. You debit an asset account (accrued revenue) and credit a revenue account to reflect earned income.
| Account | Debit | Credit |
|---|---|---|
| Accrued Revenue (Asset) | 5,000 | |
| Service/Sales Revenue | 5,000 |
This entry recognizes revenue on your income statement while creating an asset (accrued receivables) on your balance sheet. The revenue lands in the correct period, even though payment hasn't been collected.
Step 4: Reverse the entry when you invoice or receive payment
When you bill the client, you move the amount from accrued revenue to accounts receivable:
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | 5,000 | |
| Accrued Revenue (Asset) | 5,000 |
When payment arrives, you record the cash receipt:
| Account | Debit | Credit |
|---|---|---|
| Cash | 5,000 | |
| Accounts Receivable | 5,000 |
This ensures revenue isn't counted twice and that your financial records remain accurate.
Step 5: Review and reconcile accrued revenue accounts
Accrued revenue accounts should be reviewed regularly, at least at the end of each accounting period, to ensure outstanding amounts are collected and recorded correctly. Unchecked discrepancies can lead to overstated revenue or accounting errors.
Many financial reporting errors stem from revenue recognition mistakes. Regular reconciliation helps you maintain compliance, avoid costly misstatements, and ensure financial statements accurately reflect your earnings.
Accrued revenue journal entry examples
These examples show how accrued revenue entries work across different industries so you can apply the concept to your own situation.
Consulting and professional services
A consulting firm completes a strategy project for a client on December 20. The total fee is $30,000, but the client won't be invoiced until January 10. Since the service was delivered in December, the revenue must be recorded in that month.
December 31 accrual entry:
| Date | Account | Debit | Credit |
|---|---|---|---|
| Dec 31 | Accrued Revenue | $30,000 | |
| Dec 31 | Consulting Revenue | $30,000 |
January 10 invoice entry:
| Date | Account | Debit | Credit |
|---|---|---|---|
| Jan 10 | Accounts Receivable | $30,000 | |
| Jan 10 | Accrued Revenue | $30,000 |
January 20 payment received:
| Date | Account | Debit | Credit |
|---|---|---|---|
| Jan 20 | Cash | $30,000 | |
| Jan 20 | Accounts Receivable | $30,000 |
Law firms, marketing agencies, and healthcare providers follow similar patterns, completing work before billing, then accruing revenue to keep financial statements accurate.
SaaS and subscription businesses
A software company offers a usage-based platform billed monthly in arrears. In March, a customer uses $8,500 worth of services, but the invoice won't go out until April 1.
March 31 accrual entry:
| Date | Account | Debit | Credit |
|---|---|---|---|
| Mar 31 | Accrued Revenue | $8,500 | |
| Mar 31 | Subscription Revenue | $8,500 |
April 1 invoice entry:
| Date | Account | Debit | Credit |
|---|---|---|---|
| Apr 1 | Accounts Receivable | $8,500 | |
| Apr 1 | Accrued Revenue | $8,500 |
Without accruing this revenue, the company's income would appear inconsistent month to month, failing to reflect actual earnings. This is especially common with usage-based, metered, or end-of-cycle billing models.
Construction and long-term contracts
A construction company signs a $500,000 contract to build a commercial facility. By the end of Q1, the project is 30% complete. Using the percentage-of-completion method, the company accrues $150,000 in revenue.
March 31 accrual entry:
| Date | Account | Debit | Credit |
|---|---|---|---|
| Mar 31 | Accrued Revenue | $150,000 | |
| Mar 31 | Construction Revenue | $150,000 |
The percentage-of-completion method ensures revenue is recognized proportionally as work progresses, rather than waiting until the entire project is finished. This gives stakeholders a more accurate view of financial performance throughout multi-phase projects.
Roughly 64 million Americans worked as freelancers in 2023, with many relying on accurate accrual accounting to manage irregular payment cycles across consulting, creative, and contract-based work.
How does accrued revenue impact financial statements?
Without accrued revenue, financial statements can misrepresent a company's performance, leading to incorrect valuations, tax miscalculations, and compliance risks.
Balance sheet
Accrued revenue appears as a current asset on the balance sheet under accounts receivable or accrued income. This represents money the company has earned but has not yet received.
For example, a consulting firm that completes a project in December but doesn't invoice the client until January still needs to record that income in December. If the firm overlooks accrued revenue, its balance sheet will underestimate assets, giving the impression that the company is financially weaker than it actually is.
Accrued revenue ensures the balance sheet reflects all earned income, offering a more accurate view of a company's liquidity and financial position. Investors, lenders, and stakeholders rely on this information to assess whether a company has enough accounts receivable to support its short-term obligations.
Income statement
The income statement records revenue when it is earned, not when cash is received. This aligns with GAAP's revenue recognition principle, which requires businesses to match revenue to the period in which services or goods were provided.
For example, a SaaS company providing annual software subscriptions records a portion of revenue each month, even if the customer hasn't paid yet. If accrued revenue isn't recorded, the income statement will understate earnings, giving a misleading picture of financial performance.
This is especially important for businesses seeking funding. Investors and lenders assess revenue trends to determine profitability and growth potential. If a company underreports income due to missing accrued revenue entries, it could struggle to secure loans or attract investment.
Cash flow statement
Since accrued revenue represents earned income that hasn't been collected in cash, it does not initially affect the cash flow statement. The company reports the revenue on the income statement and balance sheet, but cash flow remains unchanged until the payment is received.
Once the company invoices the customer and collects payment, the cash flow statement posts the cash inflow to operating activities. Businesses need to track accrued expenses carefully to avoid cash flow mismatches, ensuring they have enough liquid funds to cover expenses while waiting for payments.
For instance, if a marketing agency books $50,000 in accrued revenue in December but collects the payment in March, the revenue is recorded in December, but cash flow doesn't increase until March. Poor tracking of these entries can lead to short-term cash shortages, affecting payroll, supplier payments, and operational expenses.
Using automation tools like Ramp's real-time data syncing can help businesses avoid these issues. Ramp connects directly with accounting platforms such as QuickBooks, NetSuite, and Sage, automatically updating all accrued revenue transactions as payments are received. This allows finance teams to monitor cash flow changes in real time, reducing the risk of unexpected shortages and improving financial planning.
Accrued revenue vs. accounts receivable
Both accrued revenue and accounts receivable are current assets on your balance sheet, but they represent different stages of the revenue cycle. Accrued revenue tracks income you've earned but haven't yet billed. Accounts receivable tracks income you've billed but haven't yet collected.
| Accrued revenue | Accounts receivable | |
|---|---|---|
| Invoice sent | No | Yes |
| When recorded | Before billing | After billing |
| Balance sheet classification | Current asset | Current asset |
| Relationship | Becomes A/R when invoiced | Created from accrued revenue or direct sales |
The simplest way to think about it: Accrued revenue is unbilled earned income, while accounts receivable is billed uncollected income. When you send the invoice, accrued revenue converts to accounts receivable. When the customer pays, accounts receivable converts to cash.
Accrued revenue vs. deferred revenue
Accrued revenue and deferred revenue are two sides of revenue recognition in accrual accounting. They're essentially opposites:
- Accrued revenue: You performed the work but haven't been paid yet—recorded as an asset
- Deferred revenue (unearned revenue): You received payment but haven't performed the work yet—recorded as a liability
| Accrued revenue | Deferred revenue | |
|---|---|---|
| Work performed | Yes | No |
| Payment received | No | Yes |
| Balance sheet classification | Current asset | Current liability |
| Also called | Accrued income | Unearned revenue |
Deferred revenue occurs when a company receives payment for a product or service it has yet to provide. Since the company still owes the customer something, it is recorded as a liability on the balance sheet under unearned revenue. As the company delivers the service or product over time, it gradually moves the deferred revenue to a revenue account in the income statement.
For instance, a SaaS company that collects an annual subscription fee up front must defer the revenue and recognize only a portion each month as services are delivered. If deferred revenue isn't recorded correctly, financial statements may overstate earnings, creating misleading financial reports.
Accrued revenue, however, is recorded when you've earned revenue but haven't yet received payment. This ensures financial statements reflect income as it's earned rather than when cash is collected. It's recorded as an asset on the balance sheet because you expect to receive payment in the future.
For example, if a consulting firm completes a project in December but invoices the client in January, the revenue is still recognized in December as accrued revenue. Without this entry, earnings would be understated, misrepresenting the company's financial position.
The key difference between the two lies in timing. Accrued revenue reflects money that is earned but unpaid, while deferred revenue represents money that is received but not yet earned. If you fail to properly classify these entries, you risk financial misstatements, tax errors, and compliance issues.
Ramp's custom accounting rules and dynamic field mapping allow you to automate expense categorization and accelerate accounting processes, ensuring accurate reporting and reducing the risk of misstatements.
When to record adjusting entries for accrued revenue
Adjusting entries for accrued revenue are recorded at the end of an accounting period to align your books with economic reality. These entries ensure revenue lands in the period it was earned, not the period you happened to send an invoice.
Common triggers for recording accrued revenue adjusting entries:
- Month-end or quarter-end close: Review all open contracts and completed work that hasn't been billed yet
- Milestone completions on long-term projects: Accrue revenue when you hit a defined project milestone, even if the invoice isn't due yet
- Before preparing financial statements: Ensure all earned revenue is recognized before sharing reports with stakeholders, auditors, or investors
- Year-end close: Particularly important for tax reporting and annual financial statement preparation
The goal is straightforward: Your financial statements should reflect what you actually earned during the period, regardless of when the invoice goes out or when cash hits your account.
Close your books faster with Ramp's AI coding, syncing, and reconciling alongside you
Month-end close is a stressful exercise for many companies, but it doesn't have to be that way. Ramp's AI-powered accounting tools handle everything from transaction coding to ERP sync, so teams close faster every month with fewer errors, less manual work, and full visibility.
Every transaction is coded in real time, reviewed automatically, and matched with receipts and approvals behind the scenes. Ramp flags what needs human attention and syncs routine, in-policy spend so teams can move fast and stay focused all month long. When it's time to wrap, Ramp posts accruals, amortizes transactions, and reconciles with your accounting system so tie-out is smoother and books are audit-ready in record time.
Here's what accounting looks like on Ramp:
- AI codes in real time: Ramp learns your accounting patterns and applies your feedback to code transactions across all required fields as they post
- Auto-sync routine spend: Ramp identifies in-policy transactions and syncs them to your ERP automatically, so review queues stay manageable, targeted, and focused
- Review with context: Ramp reviews all spend in the background and suggests an action for each transaction, so you know what's ready for sync and what needs a closer look
- Automate accruals: Post (and reverse) accruals automatically when context is missing so all expenses land in the right period
- Tie out with confidence: Use Ramp's reconciliation workspace to spot variances, surface missing entries, and ensure everything matches to the cent
Try an interactive demo to see how businesses close their books 3x faster with Ramp.
FAQs
Accrued revenue is a current asset on your balance sheet. It represents money you've earned and are owed but haven't yet collected. Once you invoice the customer, it moves to accounts receivable. Once you collect payment, it becomes cash.
Accrued income and accrued revenue mean the same thing. Both refer to earnings you've recognized before receiving payment or sending an invoice. You'll see the terms used interchangeably across accounting textbooks and software platforms.
Accrued revenue is income you've earned but not yet received—it's an asset. Unearned revenue (also called deferred revenue) is payment you've received for work you haven't yet performed—it's a liability. They sit on opposite sides of the balance sheet.
You reverse the accrued revenue entry when you issue the invoice to the customer. At that point, you debit accounts receivable and credit accrued revenue, moving the balance from an unbilled asset to a billed receivable. The accrued revenue account returns to zero for that transaction.
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