Accrued revenue FAQ
As you try to understand accrued revenue, it's understandable if some things are still unclear. As you learn more and put your knowledge into practice, everything will become clearer. In the meantime, here are the answers to some of the frequently asked questions about accrued revenue.
What is an accrued expense?
An accrued expense is a corporate finance term that refers to expenses that are recorded in accounting books before they have been paid. As the purchasing firm, you will record it when you incur the expenses and not when you pay them.
In essence, an accrued expense represents a company's obligation to make a cash payment in the future. Therefore, they are recorded as current liabilities in the balance sheet.
Is accrued revenue an asset?
Though accrued revenue represents revenue that you have earned but has not been paid for, it qualifies as an asset. However, it's important to note that it is not as valuable as cash as it requires more effort to bill and convert into cash.
Whereas accrued revenue may demonstrate a capacity to acquire customers, it shows that your collection process is inefficient if it's too high.
Is unearned revenue accrued revenue?
Though accrued revenue and unearned revenue are confusing to many, they couldn't be more different. Accrued revenue represents revenue that you have earned and for which you are yet to receive payment. Unearned revenue, also referred to as deferred revenue, refers to payments you have received for services you are yet to render.
Are accrued revenues on income statements?
To put it simply, yes. Once recognized, accrued revenue is recorded as revenue on the income statement. It is also recorded on the balance sheet under the accounts receivable.