2.2 Accrued Revenue & Receivables

An accrued revenue is revenue that is earned by the cutoff date even though the customer has not paid and, in many bookkeeping shops, has not even been invoiced. The adjusting entry always increases an asset and increases revenue:

Cash is not in the entry. If you debit Cash, you are pretending the money already arrived. If you credit Unearned Revenue, you are treating an earning event as a customer prepayment — the opposite fact pattern.

AIPB's adjusting-entries skill set is built for end-of-month, quarter, and year cutoffs. Unbilled work is the item most working bookkeepers actually forget, because the invoice lives in next month's billing run. The time-period assumption does not care about your billing calendar. If March labor produced March value, March statements include it.

Worked example: unbilled consulting

Northside Advisors completes $3,450 of consulting on March 31, 2026. The engagement letter says invoices go out on the 4th of the following month. No invoice exists yet, and no cash has been received.

March 31 adjusting entry

T-account view after the adjustment (only this item):

Balance sheet: assets up $3,450. Income statement: March revenue up $3,450. Equation: Assets = Liabilities + Equity still holds because equity rose through revenue.

Subsequent collection without reversing

The invoice is sent April 4. If Accounts Receivable already holds the $3,450, do not invoice it into revenue again. Many billing systems post Debit Accounts Receivable; credit Revenue when an invoice is created. If that happens after you already accrued, you must reverse the invoice's revenue/AR pair or skip invoicing onto the books and use a memo invoice. On April 12 the client pays $3,450:

April revenue from this job is $0. March already earned it. Crediting Consulting Revenue on April 12 would double-count $3,450 of income and leave a ghost receivable.

Same facts with a reversing entry

Some firms reverse accruals on the first day of the next period so the billing clerk can process a normal invoice.

The April 1 debit to Consulting Revenue is not a March correction. It is a 2026-April contra-revenue that zeros the receivable. When the April 4 invoice posts Debit Accounts Receivable $3,450; credit Consulting Revenue $3,450, April revenue nets to zero ($3,450 credit invoice minus $3,450 debit reversing). Cash collection is then Debit Cash; credit Accounts Receivable. March keeps the original $3,450 credit. The statements stay correct only if the reversing entry is actually posted. Reverse and then also collect as Debit Cash; credit Revenue without an invoice, and April revenue is zero as intended. Forget the reversing entry and still credit Revenue on collection, and you double-count.

Reversing is optional. If your shop does not reverse, everyone must know that accrued jobs are already on the receivable subledger.

Worked example: interest receivable

On December 1, 2026, Northside accepts a $20,000, 90-day, 9 percent note from a client who needed extra time to pay. Interest is due at maturity. Bookkeepers commonly compute note interest on a 360-day banker's year unless the problem states 365 days. This guide uses 360 days when a day-count is needed.

Interest for 30 days in December:

$20,000 × 0.09 × 30/360 = $150

Do not debit Interest Expense or credit Interest Payable. Those accounts are for the borrower. Northside is the holder of the note.

Full 90-day interest at maturity (March 1, 2027, if December has 30 days under the 360-day convention used here):

$20,000 × 0.09 × 90/360 = $450

Without reversing, the March 1 collection of principal and interest is:

The $300 credit is January–February interest (60/360 × $20,000 × 0.09). December already recognized $150. Total interest revenue across the life of the note is $450, which matches the cash interest received.

If you accrued nothing at December 31 and then credited all $450 to 2027 interest revenue at maturity, 2026 net income is understated $150 and 2027 is overstated $150. That is a cutoff error, not a cash-count error — the $450 of cash is still correct.

Worked example: unbilled hours and incomplete billing

Two more patterns show up constantly.

Unbilled hours. An attorney has 12 hours of December work in the time file at $175 per hour that has not gone to a draft invoice. Accrue 12 × $175 = $2,100. Debit Accounts Receivable $2,100; credit Legal Fee Revenue $2,100. Waiting for the draft invoice moves December production into January.

Incomplete billing on a fixed fee. A $5,000 cleanup project is 60 percent complete on January 31. No invoice will go out until the job is 100 percent complete in February. Accrual earning is 0.60 × $5,000 = $3,000. Debit Accounts Receivable (or Unbilled Receivables) $3,000; credit Service Revenue $3,000. In February, when you invoice $5,000, only the remaining $2,000 is new revenue if the $3,000 stayed on the receivable. If you invoice the full $5,000 to revenue in February and never accrued, January is short $3,000 and February is overstated $3,000. If you accrue $3,000 and invoice $5,000 all to revenue, you have $8,000 of revenue on a $5,000 job.

Landlord rent and other accrued receivables

If the company is the landlord and March rent of $2,200 is earned but the tenant pays on April 5, March 31 is Debit Rent Receivable $2,200; credit Rent Revenue $2,200. That is accrued revenue, not unearned revenue. Unearned rent is what you record when a tenant prepays April in March. Mixing those two is a classic debit/credit sign error: prepayment is a liability until earned; unpaid earned rent is an asset.

Traps specific to accrued revenue

• Forgetting incomplete billing. If it is not in the invoice batch, it is still earned. Hunt time sheets, job-cost reports, and open work orders at cutoff.
• Debiting Cash in the adjusting entry. Cash is not here yet.
• Crediting Unearned Revenue. No customer cash arrived early.
• Double revenue on collection. After a proper accrual, cash hits the receivable, not income.
• Using Interest Payable on a note receivable. Payable is the borrower's account.
• Accruing a deposit that is not yet earned. If the customer paid, that is Section 2.4, not this section.

The diagnostic question is always: Did we earn it, and is it not yet in a revenue account? If yes, accrue a receivable. If the customer already paid, you are in deferred revenue, not accrued revenue.