Definition
The financial accounting term accrued revenue refers to income earned during an accounting period, but not yet recorded or received prior to the company's financial closing date.
Explanation
Also known as accrued income and unrecorded revenue, accrued revenue is an accounting method that is aligned with the matching principle, which states that revenues generated in an accounting period need to be matched with the expenses incurred in that same accounting period.
Companies will accrue revenues when goods or services have been rendered, but cash has not yet been received from the consumer. Accrued revenues are an asset, and will appear on the company's balance sheet. As payment is received from customers, this asset account will be reduced and revenues of the company will increase.
Example
Company A hires a vendor to install a new software product over the next 10 months. The vendor's cost is $1,200,000, and the agreement calls for four quarterly payments of 25% of the contract value. Since the vendor would be completing roughly 1/12th of the project each month, they would accrue revenue at a rate of $100,000 per month.
Related Terms
The matching principle is a financial accounting term that refers to a standard, which states that revenues generated in an accounting period need to be matched with the expenses incurred in that same accounting period.
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