Accrued Revenue: A Complete Guide with Examples

Delivering a service and getting paid for it are two halves of an equation — but they don’t always happen at the same time. Tracking accrued revenue helps you recognize income when it’s earned, and not just when the cash is received.

Accrued revenue is a key principle in accrual accounting, providing a clear financial picture that prevents misleading reports. Whether you’re managing long-term contracts or subscription services, understanding accrued revenue is an essential part of effective revenue lifecycle management.

This guide breaks down everything you need to know about accrued revenue for revenue lifecycle management, from fundamental accounting principles to examples and step-by-step calculations.

Accrued revenue is income that you have earned but not yet received. Under accrual accounting, revenue is recognized when goods or services are delivered instead of when the payment is received. This approach leads to financial statements that more accurately reflect your company’s true earnings during a specific period.

For example, if a consulting firm completes a project in December but won’t receive payment until January, the revenue is still recorded in December’s financials. Income matches with the period it was earned, which offers a clearer picture of financial performance and aligns with accounting standards.

Accrued revenue is considered an asset, not a liability. Since it represents money that is owed to your business for services or products already provided, it appears on the balance sheet under current assets. Unlike a liability, which represents an obligation to pay, accrued revenue reflects a future cash inflow that you expect to receive.

Although they sound similar, accrued revenue and deferred revenue are opposites in accounting — and different industries rely on them for distinct reasons.

• Accrued revenue is recognized before payment is received. It is common in industries with long-term contracts and subscription-based services, such as SaaS and consulting.
• Deferred revenue is received before services or products are delivered. It is often used in industries like retail (gift cards), insurance (prepaid policies), and event ticketing.

For instance, if a software company provides annual subscriptions but bills customers upfront, that payment is recorded as deferred revenue until the service is provided over time. In contrast, if the company delivers software services before billing the client, it records accrued revenue until payment is collected.

Marginal revenue is the extra income earned from selling one more unit of a product or service. It can help you decide on pricing, production levels, and even profitability by showing how much each additional sale contributes to total revenue.

Accrued revenue, on the other hand, is about tracking income that has been earned but not yet paid. It’s all about making sure revenue is recorded in the right accounting period, even if payment hasn’t been received yet.

While both relate to revenue, they serve different purposes — marginal revenue helps with pricing and sales decisions, while accrued revenue keeps financial records accurate.

Accrued revenue is recorded before an invoice is issued to reflect earnings that have been earned but not yet billed. Accounts receivable appears after an invoice has been sent and payment is due.

For example, if a law firm completes a case but hasn’t yet billed the client, those earnings are recorded as accrued revenue. Once the firm sends a sales invoice, the amount moves from accrued revenue to accounts receivable, representing the formal request for payment. An AI sales agent can automatically follow up on payments for more accurate tracking.

Accurate revenue tracking is essential for businesses of all sizes. Accrued revenue is an important part of that since it helps ensure financial statements show true earnings. This tracking is a simple, yet effective, way to prevent underreporting in one period and overreporting in the next. Without it, financial reports can be misleading, which makes it harder to make informed decisions.

Beyond financial reporting, accrued revenue also plays a key role in budgeting, sales forecasting, and staying compliant with accounting standards like GAAP and IFRS. Using sales software to record revenue when it’s earned gives you a clearer view of cash flow and helps you plan expenses more effectively.

Managing accrued revenue properly offers several advantages. Some of the most common benefits include:

• Improved financial accuracy: Accrued revenue ensures that income is recorded in the correct period, preventing mismatches that could distort financial reports. Automating revenue tracking with AI for sales can also help you manage financial reporting more efficiently.
• Better cash flow forecasting: Recording accrued revenue helps you anticipate incoming payments, making it easier to manage expenses and plan for future financial needs.
• Compliance with accounting standards: Proper revenue recognition supports adherence to financial regulations like GAAP and IFRS, reducing the risk of compliance issues.
• More accurate performance evaluation: Recognizing revenue when it’s earned allows you to measure your company’s true profitability and track growth over time.
• Stronger investor confidence: Transparent and well-managed financial records make businesses more appealing to investors and stakeholders by providing a clear picture of financial health.

Accrued revenue is a key element of strategic revenue management that helps businesses maintain financial stability and make informed business decisions about long-term growth strategies.

Accrued revenue follows two key accrual accounting principles: the matching principle and the revenue recognition principle. These two principles work together so that revenue is recorded in the correct period to create a clear picture of your finances.

The matching principle states that expenses should be recorded in the same period as the revenue they generate. So if a marketing agency delivers a project in December but gets paid in January, it still records the revenue and related expenses in December. This prevents mismatched reporting.

The revenue recognition principle requires you to record revenue when it’s earned, not when payment is received. For instance, a SaaS company offering annual subscriptions records revenue monthly as services are delivered, even if the customer paid upfront. The revenue recognition principle prioritizes both transparency and compliance with accounting standards.

Applying these two principles can help you manage cash flow and maintain regulatory compliance since you are able to track revenue more accurately.

Tracking revenue is one thing — calculating it accurately is another. You need a clear method to determine how much revenue has been earned but not yet paid. By following this simple formula, you can make sure revenue is recognized in the right period for a true reflection of your financial performance.

Accrued Revenue = Total Contract Value × (Work Completed ÷ Total Project or Service Period)

Here’s what this calculation looks like going step-by-step:

1. Identify the total contract value. Determine the full amount you expect to earn from the project or service.
2. Determine the revenue recognition period. Identify the time frame over which the revenue should be recognized (e.g., months, milestones).
3. Measure the portion of work completed. Track progress using milestones, time-based tracking, or service delivery completion.
4. Apply the accrued revenue formula. Multiply the total contract value by the percentage of work completed.
5. Record the revenue. Log the accrued revenue in the accounting system, adjusting for accuracy as needed.

An example of this could be a consulting firm that signs a $12,000 contract for a six-month project. After two months, one-third of the work is complete, but the client hasn’t been invoiced yet. The accrued revenue is: 12,000 × (2 ÷ 6) = 4,000

So $4,000 is recorded as accrued revenue for financial records that accurately reflect earnings.

To keep these calculations precise and aligned with accounting standards, it’s important to follow a few best practices:

• Track service completion carefully. Use clear milestones or time-based tracking.
• Leverage revenue management software. Automate calculations and reduce errors.
• Review financial statements regularly. Ensure accrued revenue aligns with actual work performed.

By following these steps, you can improve income forecasting and stay compliant with accounting standards. Sales analytics software can simplify the process for even more accurate insights.

Accrued revenue appears in various industries where businesses provide goods or services before receiving payment. Below are some common scenarios where accrued revenue plays a crucial role.

SaaS companies often offer annual subscription plans but recognize sales revenue monthly as services are provided.

Example:

A SaaS company sells a $1,200 annual subscription that allows customers to access its platform for a full year. Instead of recording the entire amount upfront, the company recognizes $100 per month as accrued revenue until the full amount is earned. If the customer pays at the end of the year, $1,100 in accrued revenue would appear on the balance sheet after the first 11 months.

Construction projects often span multiple months, requiring revenue to be recognized as work progresses, even before invoices are issued.

Example:

A construction company signs a $500,000 contract for a five-month project. After the first two months, 40% of the work is completed, but the client hasn’t been billed yet. The company calculates its accrued revenue as: 500,000 × 0.40 = 200,000

In this example, $200,000 is recorded as accrued revenue, reflecting the work completed but not yet paid for.

Telecom providers often bill customers at the end of the billing cycle, even though services (like internet or phone usage) have already been provided.

Example:

A mobile network provider offers a postpaid phone plan where customers pay $80 per month but are billed at the end of the month. By the 15th day, the company has already delivered half of the month’s service but hasn’t yet billed the customer. At this point, it records $40 as accrued revenue to reflect the services provided.

Recording accrued revenue ensures your financial statements reflect your company’s earnings, even when payment hasn’t been received. The process begins when you provide goods or services before billing the customer. At this stage, you recognize the earned revenue by making a journal entry: debiting accounts receivable (an asset) and crediting accrued revenue (a revenue account). This entry acknowledges that you’ve completed the work and expect payment in the future.

Once you invoice the customer, the accrued revenue shifts from an estimated amount to a formal receivable. At this point, you update your records to reflect the outstanding invoice. When payment is finally received, you record another journal entry: debiting cash and crediting accounts receivable, completing the revenue recognition process.

On your financial statements, accrued revenue generally appears as a current asset on the balance sheet under accounts receivable. Meanwhile, the income statement reflects it as earned revenue in the correct accounting period. Because no cash is exchanged immediately, the cash flow statement remains unaffected until payment is collected.

Manually tracking these transactions can be time-consuming, especially if you have to manage recurring subscriptions or milestone-based projects. Using a CRM such as Salesforce Sales Cloud allows you to integrate revenue tracking right into the flow of work. You can automate invoice creation, manage subscription billing, and make sure it’s all accurately recorded.

Accurately tracking accrued revenue is essential for financial transparency and forecasting. By recognizing revenue when it is earned, you gain a clear picture of your business’s financial health. While manual tracking can be overwhelming, automation tools and intelligent revenue management solutions make the process more efficient and accurate.