Where Does Accrued Revenue Go On The Balance Sheet?

Accrued revenue represents a fundamental concept in business accounting, reflecting income a company has earned but not yet collected. This article clarifies the nature of accrued revenue and its specific placement and significance on a company’s balance sheet.

What is Accrued Revenue?

Accrued revenue refers to income that a business has earned by providing goods or services, even though the customer has not yet paid for them, and an invoice might not have been issued. This concept arises from the accrual basis of accounting, which dictates that revenue should be recognized when it is earned, regardless of when cash is received. This approach provides a more accurate picture of a company’s economic activities during a specific period.

For example, a consulting firm that completes a project for a client on December 20th has earned that revenue, even if they won’t send the invoice until January 5th of the following year. Similarly, a bank earns interest on a loan daily, even though the borrower might only make monthly payments. These amounts, earned but not yet billed or collected, are recognized as accrued revenue.

Accrued Revenue on the Balance Sheet

Accrued revenue is classified as a current asset on a company’s balance sheet. It is considered an asset because it represents a future economic benefit to the company—specifically, the right to receive cash from customers for services or goods already provided. This future cash inflow is a valuable resource that the business controls.

Within the current assets section, accrued revenue is typically listed under an account title such as “Accrued Revenue,” “Accrued Income,” or “Unbilled Revenue.” Its inclusion increases the asset side of the fundamental accounting equation, where Assets equal Liabilities plus Equity. Recognizing this asset ensures the balance sheet accurately reflects all economic resources available to the business at a given point in time, even those not yet converted into cash.

Accrued Revenue’s Role in Financial Reporting

Accrued revenue plays a significant part in providing a comprehensive view of a company’s financial health by linking its performance to its financial position. While it appears on the balance sheet as an asset, it is intrinsically connected to the revenue recognized on the income statement. This connection adheres to the matching principle, a core accounting standard that aims to align revenues with the expenses incurred to generate them in the same accounting period.

This practice offers a more precise representation of a company’s operational performance for a given quarter or year. It connects the revenue reported on the income statement—which shows what a company earned—to the balance sheet, where the corresponding asset represents the future cash collection that will eventually occur.