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Accrued revenue is revenue recognized before the related cash is collected. In a basic period-end service example, the work is complete but has not yet been billed or recorded.
Alder Services completes $4,800 of December work and will bill in January. The customer accepted the work by year-end. The supplied right does not depend on more company performance; only its due date remains. Nothing for this work has been recorded.
Record the work before collection
The entry increases assets and revenue. Cash does not change. Later billing must not record the same revenue again. The system may update invoice details or reclassify an unbilled balance, but it must preserve one revenue amount.
Record the later collection
When Alder collects the full amount:
Collection exchanges one asset for another. Crediting Service Revenue again would count the December work twice.
The payment right assumption matters. Under revenue guidance, a receivable is distinguished from a contract asset, a right to payment that remains conditional on something other than the passage of time. This example supplies the facts for a receivable; not every unbilled amount has that classification.
Build the evidence file
First establish the customer contract and qualifying performance. Next support the amount and decide whether the payment right is unconditional. Billing can occur later, but an incomplete performance obligation or a right that still depends on future performance changes the analysis.
Follow the two-accrual example into an adjusted trial balance. The timing practice then asks you to keep December recognition separate from January settlement.
Source and boundary
Read ASC 606-10-25-23 for the connection between revenue and satisfied performance. Read ASC 606-10-45-4 for the unconditional-right distinction. These paragraphs do not prove that the stipulated work occurred, determine its price, or support collectibility.
Put the concept to work
Understand this concept
- Explain how supported current-period performance can create revenue and a receivable before billing or collection.
Apply this concept
- Prepare a basic accrued-revenue adjustment and explain the later billing or collection without recognizing the same revenue twice.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Accrual-basis accounting — Understand
To understand this concept: Required. Recognition precedes settlement because the performance belongs in the current period.
- Accrued revenue — Understand
To apply this concept: Required. The entry must follow the performance and claim analysis.
- Adjusting entry — Apply
To apply this concept: Required. The supported period-end difference is recorded and posted through an adjusting entry.
Show 2 more prerequisites
- Asset — Understand
To understand this concept: Required. The counterpart is a present customer claim rather than cash or owner investment.
- Revenue — Understand
To understand this concept: Required. The learner must distinguish performance-related revenue from cash receipt.
Lessons
Worked examples and cases
Practice
Common mistaken ideas
Sources
Standard references
Related concepts
Show 4 more related concepts
Use this idea next
- Accounts receivable — Understand
Required level here: understand. Helpful. An accrued-revenue example already demonstrates a claim arising before billing or collection.
- Accrued interest receivable — Understand
Required level here: understand. Required. Interest may be earned before the contractual cash date.
- Accrued revenue — Apply
Required level here: understand. Required. The entry must follow the performance and claim analysis.
Used in these readings
These chapters explain or apply this concept. The label states how the chapter uses it.