Accrued Revenue Explained: Definition, Journal Entries and FP&A Implications

Accrued revenue is money a business has earned but not yet invoiced or received. It arises when a product has been delivered or a service has been performed, but the billing cycle has not yet caught up with the work. Under accrual accounting, the revenue belongs in the period it was earned, not the period the invoice goes out or the cash arrives.

This guide covers the definition, how accrued revenue relates to deferred revenue and accounts receivable, the journal entries for recording and reversing it, the IFRS 15 and ASC 606 framework that governs it, worked examples across construction, SaaS, and professional services, and the FP&A planning implications that most accounting guides omit.

Read more: Strategic Financial Planning That Actually Drives Results

Accrued revenue is income a business has earned by delivering a product or service to a customer, but has not yet billed or received payment for. It is a consequence of the accrual basis of accounting, under which revenue is recognised when performance obligations are satisfied rather than when cash changes hands.

It is common in industries with longer payment cycles or where billing follows delivery with a lag: manufacturing companies that deliver goods before month-end but invoice in the following week, consulting firms that bill clients monthly for work performed in arrears, and SaaS companies that recognise subscription revenue daily as service is delivered but process invoices on a fixed quarterly cycle.

Accrued revenue typically appears as a current asset because it represents consideration the business expects to collect for performance obligations already satisfied. It is expected to convert to accounts receivable when the invoice is issued and to cash when the customer pays.

Read: Cash Management Best Practices for Better Future Cash Visibility

The key differences are straightforward but frequently confused in practice.

These two terms are opposites. Deferred revenue is recorded when cash is received before the service or product is delivered. A supplier receiving an upfront payment for materials to be delivered next quarter records the cash as deferred revenue until the delivery obligation is met. Accrued revenue is the reverse: the delivery has happened but the cash has not yet arrived.

Accounts receivable and accrued revenue are sequential, not simultaneous. Accrued revenue exists between delivery and invoice. Accounts receivable exists between invoice and payment. A logistics company records accrued revenue as it completes each stage of a shipment. Once the invoice goes out, the accrued revenue converts to accounts receivable. The cash arrives when the customer pays.

Read: What Is Revenue vs. Marginal Revenue? A Simple Guide for Finance Professionals

Accrued revenue is a current asset. It represents money the business has earned and expects to collect within the near term. It sits on the balance sheet alongside cash and accounts receivable. Unlike deferred revenue, which represents an obligation to deliver something the customer has already paid for, accrued revenue represents the opposite: a right to receive payment for something already delivered.

Read: Deferred Tax Assets – Everything You Need to Know

Both IFRS 15 (the international standard) and ASC 606 (the US GAAP equivalent) govern when and how revenue is recognised. They share the same five-step framework. Accrued revenue arises specifically at step 5.

1. Step 1: Identify the contract with the customer. A contract exists when both parties have approved it, enforceable rights and obligations are established, payment terms are clear, and collection of the consideration is probable.
2. Step 2: Identify the performance obligations. A performance obligation is a distinct promise to transfer a good or service. A construction contract with three defined project phases has three performance obligations. A SaaS contract bundling software access and implementation support has two.
3. Step 3: Determine the transaction price. The transaction price is the amount the company expects to receive in exchange for satisfying its performance obligations. It may include variable components such as performance bonuses or penalties that require estimation.
4. Step 4: Allocate the transaction price. When a contract includes multiple performance obligations, the total transaction price is allocated to each based on its standalone selling price. A contract worth $120,000 covering software ($90,000 standalone) and support ($30,000 standalone) allocates revenue in those proportions.
5. Step 5: Recognise revenue when each performance obligation is satisfied. Revenue is recognised when control of the good or service transfers to the customer, either at a point in time (on delivery) or over time (as service is performed). Accrued revenue arises here: the obligation has been satisfied, the revenue should be recognised, but the invoice has not yet been issued.

IFRS 15 also introduces the concept of a contract asset: a right to consideration that is conditional on something other than the passage of time. A construction company that has performed work but must complete a subsequent milestone before invoicing holds a contract asset rather than a straightforward account receivable. In practice, many businesses record this as accrued revenue, but the IFRS 15 distinction matters for financial statement presentation.

Read: GAAP Versus IFRS: What Actually Changes in Your Business

When a product or service has been delivered but no invoice has been issued, accrued revenue is recorded to reflect the earned income in the correct period.

This entry increases current assets (accrued revenue) and increases revenue on the income statement. Net income increases. The balance sheet and income statement are both updated to reflect the economic reality of what has been earned.

Read: Balance Sheet vs Income Statement: Key Differences and Why You Need Both for Financial Planning

When the invoice is sent to the customer, the accrued revenue entry must be reversed and reclassified as accounts receivable. Without this reversal, the revenue would be counted twice.

The reversal moves the balance from accrued revenue to accounts receivable on the balance sheet. Revenue recognition has already occurred in the prior entry. Only the balance sheet classification changes at this step.

A construction company has a $1 million contract with four equal milestones of $250,000 each. The first milestone is completed in December but the invoice will not be issued until January. Under IFRS 15 step 5, the first performance obligation is satisfied when the milestone is delivered. The $250,000 is recorded as accrued revenue in December. When the invoice goes out in January, the accrued revenue converts to accounts receivable. When the customer pays in February, accounts receivable converts to cash.

Read: Annual Recurring Revenue vs Revenue: How Each Metric Impacts Financial Forecasts

A software company provides monthly platform access. A customer on an annual contract is billed quarterly. The company delivers January and February service but does not issue the Q1 invoice until the end of March. In January and February, the delivered but unbilled subscription revenue is recorded as accrued revenue each month. When the Q1 invoice goes out in March, all three months’ accrued revenue converts to accounts receivable simultaneously.

A consulting firm works on a retainer with a client throughout November. The firm’s invoicing process runs two weeks behind the calendar month. When November closes, three weeks of consulting fees have been delivered but not yet invoiced. Those fees are recorded as accrued revenue in November’s accounts. The invoice goes out in early December, converting the accrued revenue to accounts receivable.

1. Keeping revenue estimates accurate. Accrued revenue requires estimating what has been earned before an invoice confirms the amount. On long-term contracts with variable milestones or percentage-of-completion billing, the estimate can diverge from the final invoice. Use historical data, defined project milestones, and clear contract terms to anchor estimates. Update accruals immediately when project scope changes.
2. Dealing with payment delays and disputes. A customer who disputes a delivery may reject an invoice after the accrued revenue has already been recorded. Clear contracts with well-defined acceptance criteria and delivery documentation reduce the risk of disputes. When a dispute arises, the accrued revenue should be reviewed for potential reversal or impairment until the dispute is resolved.
3. Cross-functional alignment. Many period-end accrued revenue issues arise not because of accounting errors, but because operations, billing, and finance recognise project completion at different times. Accrued revenue requires information from three sources: operations (has the service been delivered?), finance (what is the recognised value?), and billing (has the invoice been issued?). When these teams work from disconnected data, the accrual is rebuilt manually at each period-end, introducing inconsistencies and delays.
4. Getting reversals right. If the reversing entry is not processed when the invoice goes out, the revenue is counted twice. Automating the reversal trigger when an invoice is issued in the billing system, or establishing a clear period-end checklist that includes reversal verification, prevents this error.

Better cash flow visibility. Knowing the earned-but-unbilled balance gives a complete picture of short-term financial health. Accrued revenue will convert to cash, but timing depends on the invoicing cycle and customer payment terms. A business with $500,000 in accrued revenue that invoices quarterly may not see that cash for 60-90 days after the balance sheet date. Planning for that lag is the difference between managing cash flow and reacting to it.

Stronger financial forecasts. Accrued revenue shows the true value of work completed in a period, even before the invoice cycle processes. For businesses with variable billing cycles or large project-based contracts, accrued revenue is often the most accurate leading indicator of the next cash inflow cycle. Rolling forecasts built on earned revenue rather than invoiced revenue are more accurate in the short term.

Compliance and audit readiness. IFRS 15 and ASC 606 require revenue to be recognised when performance obligations are satisfied. Properly maintained accrued revenue records demonstrate compliance with these standards and provide the audit trail that external auditors require. Companies that manage accrued revenue manually and inconsistently across periods create audit risk and restatement exposure.

Accrued revenue is not just an accounting entry. For FP&A teams, it carries three specific planning implications.

1. Revenue forecasting. A growing accrued revenue balance signals that billing is lagging delivery. The revenue has been earned and will convert to cash, but the timing gap between delivery and billing can distort short-term revenue forecasts. An FP&A team building a rolling forecast needs to separate earned-but-unbilled revenue from invoiced revenue to avoid double-counting when the invoice cycle catches up.
2. Cash flow forecasting. Accrued revenue appears as a current asset but has not yet converted to cash. For a 13-week cash flow forecast, the relevant date is not when the revenue was earned but when the invoice will be issued and when the customer will pay based on their payment terms. A large accrued revenue balance can make a company appear more liquid than it actually is in the very near term.
3. Variance analysis. When revenue in the P&L is higher than cash receipts, the explanation often lies in the accrued revenue balance. An FP&A team investigating a revenue recognition timing variance needs to check whether the P&L is correctly capturing the earned-but-unbilled position, particularly at period-end when the gap between delivery and billing is at its widest.

Accrued revenue is where delivery and billing cycles diverge. The revenue has been earned. The work is done, the performance obligation under IFRS 15 or ASC 606 is satisfied, but the invoice has not yet been issued. Recording it correctly ensures the income statement reflects actual economic activity rather than the administrative timing of billing cycles.

The accounting treatment is straightforward: debit accrued revenue, credit revenue on delivery; reverse to accounts receivable when the invoice goes out. The complexity lies in managing the estimates, ensuring reversals are processed correctly, and connecting the accrued revenue balance to the cash flow plan that shows when it will actually convert to cash.

For FP&A teams, accrued revenue is both a reporting obligation and a planning input. A well-managed accrued revenue process produces more accurate revenue forecasts, better cash flow visibility, and a cleaner audit trail. These are three outcomes that matter to any CFO who is serious about the quality of the planning process.