What is accrued revenue?

Based on accrual accounting principle, results from business transactions have to be recognized without taking into account actual cash movement, i.e. revenues and expenses are being recognized even if cash has not yet been received or paid.

So, if revenue is earned, it should be recognized, if all criteria for revenue recognition have been met. In such case accrued revenue are recognized, and invoice to the customer is issued later on.

Such recognition of accrued revenue also is in line with matching principle, since expenses related to earning the revenue have already been incurred in the particular accounting period. Therefore according revenue also must be recognized to match revenue and expenses and have reliable financial result for the accounting period.

Accrued Revenue Journal Entry

Since accrued revenue is not yet supported by invoice and there is no payment yet, it is recorded during the adjustments process by recording the adjusting entry as follows:

D Accrued Revenue (Balance Sheet)
C Revenue (Income Statement)

This is the accrued revenue journal entry.

This concept is more common for service companies, which do recognize accrued service revenue, as invoicing is being done regularly based on milestones of services provision. For manufacturing or trading companies such concept is rare due to the fact that sending of goods to customer is generally supported by issued invoice.