What is Accrued Revenue?

//What is Accrued Revenue?
What is Accrued Revenue? 2017-09-30T04:40:02+00:00

Definition: Accrued revenue consists of income that has been earned from customers but no payment has been received. In other words, a good or service has been provided to a customer, but the customer hasn’t paid for it by the end of the accounting period. Accrued revenues are recorded as receivables at the end of the year to reflect the amount of money the customers owe the business for the goods or services they purchased.

What Does Accrued Revenue Mean?

What is the definition of accrued revenue? You can think of these revenues as the opposite side or the transaction from an accrued expense. When one company records an accrued expense during a period, the other company records revenues.

The most common form of accruals stems from monthly expenses like rent and utilities that are consumed throughout the month and paid on first of the following month. Rent is a good example. The renter benefits from the rent expense all month, but it doesn’t actually pay for it until the next month. According to the accrual basis of accounting, expenses must be recorded when they are incurred, not necessarily when they are paid. Thus, the renter should record an expense for its rental costs and the landlord should record revenue in the current month even though no payment has been made.

Let’s take a look at the adjusting journal entries to record the accruals.

Example

Tim’s Tackle Shop is seafood restaurant that rents out a storefront plaza for $2,500 a month on a local pier. Tim pays each month’s rent on the first of the following month. This means that Tim’s landlord, Blick Rental Co, doesn’t actually receive the rental payments until after the service has been provided.

At the end of the year, Blick’s income statement would show 11 rental payments from Tim since December’s rent wasn’t actually paid until January. Blick provided rental services in December, so he should show this earned income on the income statement. Blick records the accrual in an adjusting journal entry by debiting the accrued revenue receivable account and crediting the revenue account.

Summary Definition

Define Accrued Revenue: Accrued revenue means a receivable recorded for services and goods that have been rendered to customers, but the customers have no paid for them yet.