In accrual accounting, accrued revenue refers to income earned but not yet invoiced or received. This happens when a company delivers goods or services but hasn’t billed the customer yet.
Let’s explore this concept with real-life examples and their respective journal entries.
What is Accrued Revenue?
Accrued revenue is:
Earned: The goods/services have been delivered.
Not yet billed: No invoice issued.
Not yet received: No cash collected.
Accrued revenue increases assets (accrued revenue or accrued interest income) and revenue in the income statement.
Examples and Journal Entries
1. Product Sales Accrued Revenue
Scenario: On August 31, a company ships $25,500 worth of goods. The customer was billed on September 1. At August-end, the accountant must accrue the revenue.
Journal Entry on August 31 (Accrual):
Date
Account Title
Debit ($)
Credit ($)
Aug 31
Accrued Revenue A/c Dr
25,500
To Sales Revenue
25,500
To record accrued sales revenue before billing.
Reversing Entry on September 1 (Before Billing):
Date
Account Title
Debit ($)
Credit ($)
Sep 1
Sales Revenue A/c Dr
25,500
To Accrued Revenue
25,500
To reverse accrual upon billing.
Standard Invoice Entry:
Date
Account Title
Debit ($)
Credit ($)
Sep 1
Accounts Receivable A/c Dr
25,500
To Sales Revenue
25,500
To record invoice sent to customer.
Payment Collection Entry:
Date
Account Title
Debit ($)
Credit ($)
Sep 15
Cash A/c Dr
25,500
To Accounts Receivable
25,500
To record cash received from customer.
2. Accrued Interest Income
Scenario: You earn $500 in interest for August. It’s not yet received but due next month.
Journal Entry for Accrual:
Date
Account Title
Debit ($)
Credit ($)
Aug 31
Accrued Interest Income A/c Dr
500
To Interest Income
500
To accrue interest earned in August.
Entry When Cash is Received:
Date
Account Title
Debit ($)
Credit ($)
Sep 5
Cash A/c Dr
500
To Accrued Interest Income
500
To record interest income received.
3. Construction Project Accrual
Scenario: A construction firm signs a $500,000 contract for 5 months. After 2 months, 40% the project is complete but not billed. Accrued Revenue: 500,000 × 40% = $200,000
Journal Entry:
Date
Account Title
Debit ($)
Credit ($)
Month-End
Accrued Revenue A/c Dr
200,000
To Construction Revenue
200,000
To record revenue for work completed but not billed.
4. Telecommunications Accrual
Scenario: A mobile company offers a postpaid plan of $80/month. in mid-month, $40 worth of service is delivered but not billed.