What is accrued revenue?

Accrued revenue is income a company has earned but has not yet invoiced. The work is done, the customer owes the money, and no invoice has gone out yet. Until it does, the amount sits on the balance sheet as an asset.

It is a core part of accrual accounting, which records income in the period it is earned rather than the period the cash arrives. The point is that your financial statements reflect the work actually delivered, not the timing of your billing runs.

You will also see it called accrued income or unbilled revenue. Same balance, different labels.

When does accrued revenue arise?

Whenever a good or service is delivered well before the invoice is raised. The gap between delivery and billing is what creates it.

Common cases:

• Long-term projects billed on percentage of completion, where work accumulates for months between invoices.
• Milestone contracts, where services are delivered steadily but billing waits for an agreed checkpoint.
• Interest income earned across the term of a loan but collected with the principal at the end.
• Usage-based pricing, where a customer consumes throughout the month and is billed in arrears.

The last one catches out a lot of SaaS finance teams. If the customer used the product in March and the invoice goes out in April, March’s income belongs in March. The accountant accrues it at month end so the period is not understated.

Accrued revenue vs deferred revenue

They are mirror images, and the difference is simply which came first, the delivery or the payment.

So deferred revenue is money you hold but have not earned, while accrued revenue is money you have earned but do not yet hold. One is an obligation, the other is a claim. Getting them the wrong way round overstates income in one accounting period and understates it in the next.

Accrued revenue vs accounts receivable

Both are assets representing income earned but not yet received in cash. The difference is the invoice.

Accrued revenue exists before the customer is billed. Accounts receivable exists after billing but before receiving payment.

• Automation. Xero, QuickBooks and similar systems create receivables automatically when an invoice is raised. Nothing triggers an accrual automatically, because no accounting document exists yet, so it usually takes a manual journal.
• Presentation. Receivables get their own line as trade debtors. Accrued revenue is often folded into “other current assets”.
• Prevalence. Almost every business has receivables. Only businesses that earn ahead of billing carry accruals.
• Certainty. A receivable is an expected cash inflow backed by an invoice. An accrual is a potential one that still depends on your own measurement of what was delivered, so it carries more risk.

That last point is why auditors look closely at this balance. It is the one asset largely built from your own judgment.

Journal entries for accrued revenue

The pattern never changes. Debit the asset, credit revenue, then reverse the asset into receivables once you invoice.

Example 1: a milestone contract

A service company agrees a $12,000 contract delivered evenly over a year, so $1,000 of income per month. The first billing milestone is not until month three.

After month one the company has delivered $1,000 of work it cannot yet invoice. Recognizing revenue is still correct, because the income has been earned:

• Debit — Accrued Revenue: $1,000
• Credit — Sales: $1,000

No receivable is recorded, because nothing has been billed.

Example 2: percentage of completion

A construction company has a $5m contract running twelve months, billed quarterly on completion percentage.

End of month one, 10% complete, so $500,000 earned:

• Debit — Accrued Revenue: $500,000
• Credit — Revenue: $500,000

End of month two, 15% complete, a further $250,000:

• Debit — Accrued Revenue: $250,000
• Credit — Revenue: $250,000

End of month three, 25% complete, and the company can now bill $1,250,000. It has already recognized $750,000, which is sitting in the accrued balance, so only $500,000 is new income:

• Debit — Accounts Receivable: $1,250,000
• Credit — Accrued Revenue: $750,000
• Credit — Revenue: $500,000

Notice what the third entry does. It clears the accrual and moves the whole amount into receivables. Skip that step and you count the same income twice.

Example 3: usage-based SaaS billed in arrears

A SaaS company charges £0.10 per API call and invoices customers after each month ends. One customer uses 200,000 API calls in March, creating £20,000 of revenue. The invoice is not raised until 5 April.

At 31 March, the company has earned the revenue but has not yet invoiced it:

• Debit — Accrued Revenue: £20,000
• Credit — Usage Revenue: £20,000

When the April invoice is raised, the accrual moves to accounts receivable:

• Debit — Accounts Receivable: £20,000
• Credit — Accrued Revenue: £20,000

No additional April revenue is recorded for those March API calls. The April entry only reclassifies the asset from accrued revenue to accounts receivable. Recording the £20,000 as April revenue as well would double count the income.

Is accrued revenue on the income statement?

The revenue is. The balance is not.

Recognizing an accrual puts the revenue on the income statement in the period it was earned, with no need to wait for an invoice, a receivable or cash. The corresponding asset sits on the balance sheet until billing clears it.

This is the whole purpose of the entry. Without it, a month of delivered work would show as zero income simply because the billing cycle had not come round, and the accounting period would look far worse than the business actually performed.

Accounting rules under IFRS 15 and ASC 606

Both standards work from the same principle: revenue is recognized when a performance obligation is satisfied, not when it is invoiced (see common revenue recognition methods). Delivering the good or service is what triggers income.

Under both, an amount earned before you have an unconditional right to payment is a contract asset, which is the standards’ name for what most people call accrued revenue. Once the right to payment becomes unconditional, usually on invoicing, it reclassifies to a receivable.

For the detail, see ASC 606 in SaaS companies and our guide to revenue recognition for SaaS businesses.

Why recording accrued revenue matters

Beyond compliance, three practical reasons.

It makes monthly numbers comparable. Without accruals, revenue tracks your invoicing calendar rather than your delivery. A quarter with an extra billing run looks like growth when nothing changed.

It affects how your financial health reads. A business earning steadily but billing in arrears looks weaker than it is, which matters when the numbers go to a board, a lender or an investor.

It protects long term decisions. Pricing, hiring and forecasting all run off revenue by period. If the periods are wrong, everything built on them inherits the error.

The risk runs both ways. Under-accruing understates performance, and over-accruing books income that was never really earned, which is one of the more common financial reporting problems auditors find.

How software automates accrued revenue

Most accounting systems don’t do this well on their own. Xero has no native revenue recognition, and QuickBooks Online Advanced includes a basic revenue recognition feature, but it doesn’t handle accrued revenue or contract changes at scale. So teams track contract data in spreadsheets and post manual journals each month. That works until contract volume grows, and then it becomes the slowest part of the close.

ScaleXP imports invoices and contract data directly from your accounting system and uses text recognition to extract dates, terms and service periods, then automates revenue recognition across both accrued and deferred balances. Finance reviews and approves before anything posts.

See the workflow in detail: automate accrued revenue in Xero without manual journals, or read more about accrued income tracking.