Accrued Revenue

Published Jan 22, 2023

Definition of Accrued Revenue

Accrued revenue is income that has been earned but not yet received. That means it is revenue that has been earned but not yet invoiced or collected. It is also known as accrued income or accrued earnings.

Example

To illustrate this concept, let’s look at a small business that provides consulting services. At the end of the month, the business has provided services to its customers but has not yet sent out invoices. In this case, the business has earned the revenue but has not yet received it. Therefore, the revenue is considered to be accrued.

Now, once the invoices are sent out, and the customers pay their bills, the accrued revenue is recognized as actual revenue. That means it is added to the company’s income statement, and the cash balance is increased.

Why Accrued Revenue Matters

Accrued revenue is an important concept for businesses because it allows them to recognize income before it is actually received. That means they can record their income in the period in which it was earned, even if the cash has not yet been received. This is especially important for businesses that provide services on a regular basis, because it allows them to accurately track their income and expenses. In addition to that, it also helps businesses to better manage their cash flow and plan for future expenses.