Accrued Revenue Journal Entry: Earned but Not Yet Billed
Learn how to record accrued revenue when services are delivered before invoicing. Covers the month-end accrual, the billing event, cash collection, and how to avoid double-counting revenue.
Learn how to record accrued revenue when services are delivered before invoicing. Covers the month-end accrual, the billing event, cash collection, and how to avoid double-counting revenue.
Scenario
At June 30, Maple Advisory has completed $4,800 of consulting work for a client that hasn't been billed yet. The team worked through June but billing runs on a project-completion cycle. The invoice is sent July 3, and payment is collected July 20.
Journal Entries
June 30 — Accrue earned revenue at period-end. The work was performed in June, so the revenue belongs in June's income statement regardless of billing timing. Debit Accounts Receivable (asset — the client owes money) and credit Consulting Revenue.
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | $4,800 | |
| Consulting Revenue | $4,800 |
July 3 — Invoice is sent to the client. Since the revenue and receivable were already recorded via the accrual, no journal entry is needed. The billing event updates the accounts receivable subsidiary ledger and sends documentation to the client, but the accounting recognition already happened.
July 20 — Client pays the invoice. Record cash receipt and clear the receivable. No additional revenue is recognized — the $4,800 remains in June's revenue.
| Account | Debit | Credit |
|---|---|---|
| Cash | $4,800 | |
| Accounts Receivable | $4,800 |
Explanation
Accrued revenue captures the gap between earning revenue and billing for it. Service businesses frequently complete work before sending invoices — consulting firms bill on project milestones, law firms bill monthly for ongoing retainers, and construction companies bill on progress schedules. Without the accrual, June's income statement would understate revenue (showing zero for work already completed) and July's would overstate it (showing both June's earned work and July's). The accrual entry recognizes the economic event (services delivered) in the period it occurred, not the administrative event (invoice sent). This is the revenue recognition principle in action: revenue is earned when the performance obligation is satisfied, not when paperwork is processed. Common in professional services, construction, and any industry where delivery and billing happen on different timelines.
Variations
Partial completion: If only 60% of a $4,800 project is done at June 30, accrue $2,880 (60% × $4,800). The remaining $1,920 is recognized as the work is completed in July.
Using reversing entries: Post a reversing entry on July 1 (debit Consulting Revenue $4,800, credit Accounts Receivable $4,800). When the July 3 invoice is entered normally (debit A/R, credit Revenue), the revenue nets to zero for July and $4,800 for June. This approach simplifies the billing team's workflow.
Long-term contracts: For multi-year engagements, accrue revenue monthly based on the percentage of completion or milestones achieved. Each month-end accrual captures the incremental work done since the last recognition.
Common Mistakes to Avoid
- ✗Waiting until the invoice date to recognize revenue earned in the prior period — this mismatches revenue and the period of performance
- ✗Recording revenue again when the invoice is sent, creating double-counted revenue in July while June's revenue was already correct
- ✗Confusing accrued revenue (earned, not yet billed — an asset) with unearned revenue (billed, not yet earned — a liability)
- ✗Accruing revenue for work not yet performed just because a contract has been signed — the performance obligation must be satisfied first
FAQs
Common questions about this journal entry
Accrued revenue is income that has been earned through delivering goods or services but has not yet been billed or collected. It appears as an asset (Accounts Receivable or Accrued Revenue Receivable) on the balance sheet because the company has a right to payment for work already performed.
They're opposites. Accrued revenue means the company delivered first and will bill later (asset — someone owes you). Unearned revenue means the customer paid first and the company will deliver later (liability — you owe someone). Accrued revenue lives in Accounts Receivable; unearned revenue lives in Deferred Revenue.
Not if the accrual was already posted correctly. The invoice is a billing event, not a recognition event. The receivable and revenue were recorded when the work was performed. Sending the invoice updates the subsidiary ledger and triggers the collection process, but the accounting is already done.
Under the indirect method, the increase in Accounts Receivable (from the accrual) is subtracted from net income in operating activities because revenue was recognized without receiving cash. When cash is collected in the next period, the decrease in A/R is added back. The net cash effect happens in July (collection period), while the revenue effect happens in June (performance period).
At the end of any reporting period when the company has satisfied performance obligations but hasn't yet billed the customer. The trigger is completion of work (or passage of time for time-based services), not the billing cycle. If your company delivers services in March but doesn't invoice until April, March needs an accrued revenue entry.