Hey there, fellow number crunchers! Ever been puzzled by why your bank account doesn’t quite match up with all the hard work you’ve been pouring into your business? Welcome to the mysterious land of accrued revenue! Under accrual accounting, the amount of revenue from the sale of a product or service is recognized on the books regardless of when the cash actually decides to grace your bank account. That’s where the accrued revenue adjusting entry swoops in—to report revenue that has been earned but not yet received. Because who doesn’t love counting chickens before they hatch?
So, let’s get a bit nerdy for a second (but just a second, we promise). The adjusting entry for accrued revenues is rooted in accrual accounting, which is built on the dynamic duo of the revenue recognition and matching principles. The revenue recognition principle is like your friend who always wants credit ASAP—as soon as you’ve earned it, you better record it. The matching principle, on the other hand, insists on pairing revenues with the expenses that made them happen, like a perfect accounting love story.
Therefore, under the watchful eye of the Generally Accepted Accounting Principles (GAAP—because even accounting needs a rulebook), accrued revenue is recognized when the sale happens and your customer takes possession of the goods or services, even if their payment is still playing hard to get. So yes, adjusting entries for accrued revenue are GAAP’s way of keeping you honest. In this adventure, we’ll dive into how to make those accrued revenue adjusting entries, complete with examples to make it all crystal clear (or as clear as accounting can get).
Related: Adjusting entry for inventory
Accrued revenue explained
Alright, let’s break down this accrued revenue conundrum. In plain English, accrued revenue is money you’ve earned but hasn’t yet graced your bank account. It’s like that friend who owes you for dinner but hasn’t Venmo’d you yet—you know it’s coming, but it’s not in your wallet now. Typical examples include interest revenue accruing on a loan or services you’ve completed but haven’t yet billed your clients for.
Accrued revenue loves to cozy up in the financial statements of service-based businesses. Why? Because in the world of services, you often have to finish the work before you can sing “show me the money!” This can take weeks or even months. Meanwhile, in manufacturing land, companies are popping out invoices like hotcakes as soon as they ship products. It’s like the difference between a slow-cooked meal and fast food.
Imagine this: Your company offers net-30 payment terms (because you’re nice like that). A customer snaps up a gadget on May 1 for $100 but doesn’t have to pay until June 1. So, in May, you record an accrued revenue of $100—because you’ve earned it, even if your customer is busy spending their cash elsewhere. Then, come June 1, when the stars align and the payment arrives, you make an adjusting entry to show that the cash has finally landed.
So, to sum it up: Accrued revenue gets logged in your books when you’ve earned revenue by providing goods or services, but the cash is playing hide-and-seek. On the flip side, your customer (the one who hasn’t paid yet) is recording an accrued expense on their balance sheet—it’s only fair! If you skip recording these adjusting entries, you’ll be selling yourself short. Your financial statements will underreport your total assets, revenues, and net income. And no one wants to look poorer on paper than they actually are, right?
See also: When are adjusting entries recorded?
Accrued revenue adjusting entry
Now, let’s talk turkey—the journal entry for accrued revenue, one of the all-star adjusting entries in accounting. When you accrue revenue, you initially record it on your income statement as revenue earned. At the same time, you debit an accrued revenue account (think receivable) on your balance sheet. It’s like saying, “I have revenue coming in, and someone owes me money.” Then, when your customer finally opens their wallet, you make the necessary adjustments. You debit your cash account—cha-ching!—and credit the accrued revenue or accounts receivable account to show that the customer paid up. Simple as that.
So, the initial journal entry looks like this:
| Account | Debit | Credit |
| Accrued revenue / Accounts receivable | 00 | |
| Revenue | 00 |
Then, the adjusting entry when the cash actually arrives is:
| Account | Debit | Credit |
| Cash | 00 | |
| Accrued revenue / Accounts receivable | 00 |
Recording these adjusting entries isn’t just for fun—it’s crucial to keep your balance sheet in balance (they don’t call it a balance sheet for nothing). This won’t change the revenue you’ve recognized on the income statement, but it helps track the cash inflows and the revenue accrued. By adjusting for accrued revenues, you’re accurately recording the increase in revenue and the increase in money owed to you. That way, your ledgers, trial balance, and financial statements are all singing in harmony, and you’re complying with those trusty GAAP revenue recognition rules.
Related: Adjusting Entry for Prepaid Insurance
Examples of accrued revenue adjusting entry
Enough with the theory—let’s dive into some examples to see accrued revenue adjusting entries in action!
Adjusting entry for accrued revenue: example 1
Imagine ABC Company has issued a 3-year, $10,000 note receivable to a customer, with a snazzy 6% annual interest rate. But surprise, surprise—the customer hasn’t made any payments yet. At the end of each accounting period, ABC Company needs to recognize the interest revenue that’s piling up on this IOU (because money doesn’t grow on trees, but it does grow on interest).
So, let’s crunch some numbers:
Interest = Principal x Annual Interest Rate x Time Period in Years
Plugging in the numbers:
Interest = $10,000 x 6% x (30/365)
Interest = $49.32 (let’s round to two decimal places, because we’re friendly like that)
Since ABC Company has accrued approximately $49 in interest revenue during the month (we won’t quibble over the pennies), they make an accrued revenue journal entry to increase their Interest Receivable account and recognize the revenue.
| Account | Debit | Credit |
| Interest Receivable | $49 | |
| Revenue | $49 |
Then, when the customer finally pays up, ABC Company makes the following adjusting entry:
| Account | Debit | Credit |
| Cash | $49 | |
| Interest Receivable | $49 |
Accrued service revenue adjusting entry: example 2
Let’s say you’re a plumbing guru and you fix a leaky faucet for a customer on April 30, totaling $90 worth of work. Being the busy bee you are, you don’t send out the bill until May 4. But wait—you earned that $90 in April, so you need to recognize it in April’s books. To do this, you make an entry to increase your Accounts Receivable by $90 and bump up your Service Revenue by $90.
| Account | Debit | Credit |
| Accounts Receivable | $90 | |
| Service Revenue | $90 |
Then, when you finally send out the bill and the customer pays (hooray!), you make the following adjusting entry:
| Account | Debit | Credit |
| Cash | $90 | |
| Accounts Receivable | $90 |
Accrued revenue adjusting entry: example 3
Finally, let’s consider this nail-biter: In December, ABC Ltd completes a job for XYZ Corporation worth a whopping $5,000. But when ABC’s accountant is reviewing the trial balance, they realize that the customer hasn’t been billed yet! Gasp! The earned revenue isn’t showing up in Accounts Receivable or Service Revenue. Time to jump into action with an accrued revenue adjusting entry on December 31.
| Date | Account | Debit | Credit |
| Dec 31 | Accounts Receivable | $5,000 | |
| Service Revenue | $5,000 |
Then, once XYZ Corporation gets around to paying their bill (better late than never), ABC Ltd makes the following adjusting entry:
| Date | Account | Debit | Credit |
| Cash | $5,000 | ||
| Accounts Receivable | $5,000 |
