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The idea of "accrued revenue" in accrual accounting describes the recording of income or revenue that has been earned but has not yet been paid out in cash.
In accordance with the matching and revenue recognition principles, accrued revenue is reported as an asset on the balance sheet and as revenue on the income statement.
Accrued revenue can appear in a variety of circumstances, such as when a company extends credit to a client, when it receives interest or dividends on investments, or when it completes work for a lengthy contract that covers several accounting periods. In each instance, even though the money hasn't been collected yet, the company has fulfilled its performance commitment and is entitled to payment.
A business's status and financial performance can be evaluated by looking at its accrued revenue. It doesn't matter when cash is received; by capturing accrued revenue, a company may accurately depict the volume of sales and income generated within a certain time period. Due to the fact that the income is recorded within the same period as the expenses incurred to generate it, accrued revenue also aids a company in more properly matching its revenues and expenses.
To record accrued revenue, a business makes an adjusting journal entry at the end of an accounting period. The transaction debits an asset account, typically accounts receivable or accrued revenue, and credits an account for revenue (usually sales revenue or interest income). The business reverses the accrued revenue entry when the client or payor gives them cash by crediting the asset account and debiting the cash account.
