Accrued revenues

Definition

Accrued revenues are revenues that have been earned but not yet received in cash or recorded at the end of an accounting period. They require an adjusting entry to recognize the revenue in the correct accounting period.

5 Must Know Facts For Your Next Test

1. Accrued revenues are typically recorded with a debit to an asset account and a credit to a revenue account.
2. They ensure that revenue recognition adheres to the accrual basis of accounting, matching revenues with the periods they are earned.
3. Common examples include interest earned on investments or services performed but not yet billed.
4. Failure to record accrued revenues can result in understating both assets and revenues in financial statements.
5. Adjusting entries for accrued revenues are usually reversed at the beginning of the next accounting period.

Review Questions

• What is the primary purpose of recording accrued revenues?
• Which accounts are affected when accruing revenue?
• Why is it important to adjust for accrued revenues before preparing financial statements?

Related terms

Accrual Basis Accounting:

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.

Adjusting Entries:

Journal entries made at the end of an accounting period to update certain accounts and ensure that financial statements reflect accurate balances.

Deferred Revenues:

Liabilities arising from receiving payments in advance for goods or services that have not yet been delivered or performed.