Accrued Revenue Journal Entry

Overview

Accrued revenue is the revenue that the company has already earned but has not received the payment from the customers yet. Under the accrual basis of accounting, revenues should be recognized when they are earned regardless of the time of money received. Likewise, the company needs to make the proper journal entry to recognize the accrued revenue in the correct accounting period.

Some revenues may not be recorded during the period due to they are earned through the passage of time such as interest incomes or through the performance of services that cross to the next accounting period.

In this case, at the period-end adjusting, the company needs to account for all of these accrued revenues. This is due to without the journal entry for accrued revenue when it is earned, both revenues in the income statement and assets in the balance sheet will be understated.

Accrued revenue journal entry

The company can make the accrued revenue journal entry by debiting accounts receivable and crediting revenue account.

Account	Debit	Credit
Accounts receivable	000
Revenue		000

In this journal entry, the amount of revenue earned is recorded as revenue in the income statement and as accounts receivable in the balance sheet. Likewise, both total revenues and assets increase in the same amount.

After the company receives the payment money from the customer, it can make the journal entry to eliminate the customer’s receivable account by debiting the cash account and crediting accounts receivable.

Account	Debit	Credit
Cash	000
Accounts receivable		000

This journal entry does not affect the income statement items as the company has already recognized the revenue in the previous period.

Example

For example, in October 2020, the company ABC has performed services to one of its customers that worth $500. However, as the company has not received the payment from the customer yet, no accounting record is made yet at the end of October 2020.

What is the journal entry for the accrued revenue in the October 31 adjusting entry?

What is the journal entry when the company receives the payment in November 2020?

Solution:

In the October 31 adjusting entry

In the October 31 adjusting entry, the company can make the accrued revenue journal entry for the $500 earned in October as below:

Account	Debit	Credit
Accounts receivable	500
Service revenue		500

As the company performed the services in October, the revenue should be recorded in October regardless of when payment is received. Hence, without this journal entry, both total revenues and assets in October will be understated by $500.

When the company receives the payment

When the company receives the payment from its customer in November, it can make the journal entry as below:

Account	Debit	Credit
Cash	500
Accounts receivable		500

This journal entry is to record the collection of receivables as the company receives the cash payment from the customer for the service it provides in October 2020.