Accrued Revenue

Accrued revenue is revenue which has been earned by a business for goods and services provided to a customer but which has not yet been invoiced to the customer.

Suppose a business has a contract worth with a customer to provide a service which is to be invoiced quarterly in arrears. The contract is worth 12,000 for the full quarter and the service is provided continuously throughout the quarter.

At the end of the first month, the business will have earned one third of the amount (4,000) which has not been reflected in the accounting records. To correct this situation an adjusting entry is made using an accrued revenue journal entry.

Accrued Revenue Journal Entry

The accrued revenue adjusting entry is shown in the accounting records using the following bookkeeping entries:

Accrued revenue journal entry
Account Debit Credit
Accrued revenue 4,000
Revenue 4,000
Total 4,000 4,000

Accrued Revenue Bookkeeping Explained

The debit entry represents an asset in the balance sheet and reflects the amount owed by the customer for services provided and earned to date under the contract.

The credit entry is to the revenue account in the income statement and represents the income earned to date.

The Accounting Equation

The Accounting Equation, Assets = Liabilities + Capital means that the total assets of the business are always equal to the total liabilities of the business This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.

Accrued revenue journal entry accounting equation
Assets = Liabilities + Owners Equity
Accrued revenue = None + Revenue
4,000 = 0 + 4,000

With the accrued revenue journal entry, the asset (accrued revenue) is increased by 4,000 representing an amount owed by the customer for services provided during the month. On the other side of the equation, the additional revenue increases the net income and retained earnings of the business resulting in an increase in the owners equity in the business.

Note: Accrued revenue should not be confused with deferred revenue. Accrued revenue is revenue earned but not yet invoiced, whereas deferred revenue is revenue received but not yet earned.

Popular Examples

Another example for you to discover.

Accrued Revenue May 9th, 2017Team

You May Also Like

Related pages

overstatement examplebank gearing ratiodupont analysis calculatorwhat is contra entry give an exampledouble entry bookeepingis unearned revenue on the balance sheetaccounts receivable and unearned revenuebookkeeping notesgenerally accepted accounting principles concepts and conventionsrecording depreciation expense journal entrypayroll journal entry exampledelayed perpetuity formulanon profit accounting tutorialdiscounting perpetuityinventory turns ratioaccounting sheets exceladjusting entries for accrualsdays purchases in accounts payableaccounting debits and credits examplescalculating markup and marginwhat does return on capital employed meandouble entry accounting transactions must alwaystrial balance sheet excelbook keeping definationhow to extract a trial balanceperforma of income statementdividend payable on balance sheetdefine imprestmerchandise accounting definitionpayroll liabilities vs payroll expensesclosing dividends to retained earningshow to calculate npv in excelstandard costing method exampledefinition of trade payablesincome statement bad debt expenseis treasury stock a contra accountprepaid rent adjusting entryjournal entry for rent paid to landlordaccounting entries for income taxprintable ledger papermanagerial accounting journal entriescalculate variable cost per unitreturn on capital employed analysishow to reconcile accounts payableaccounting worksheetssimple depreciation calculatorretained earnings examplesstraight-line discount amortizationdepreciation formulascapex examplesperpetuity formulapresent value of growing annuity formulawhat is a cash disbursement journalwhat is the meaning of imprestaccounts payable internal control proceduresadjusting entry for supplies useddefine capacity cushionlong term debt equity ratio formulabookkeeping cycleunearned revenue journal entry exampleswhy accumulated depreciation is credittwo column journal entry accountingmarketable securities formulaimprest account definitionfuture value interest factor annuityfixed asset turnover definitionfuture annuity calculatorinventory template sheetretained earnings statement formataccounting inventory systemspayout ratio definition