What is accrued revenue?

Accrued revenue is income that has been earned through service delivery but not yet billed or collected, and is recorded as an asset on the balance sheet until invoiced. For professional service firms, accrued revenue represents work performed but not yet invoiced, which is common at month-end when billing cycles do not align with service delivery. Proper accrual ensures financial statements reflect actual earned revenue regardless of billing timing.

Key characteristics

• Revenue earned but not yet billed

• Recorded as an asset until invoiced

• Ensures accurate period revenue recognition

• Common at the end of the month, before the billing cycle completes

• Reversed when the invoice is issued

• Essential for accrual basis accounting accuracy

Why it matters for professional service firms

Accrued revenue ensures financial statements reflect work actually performed. Without accruals, a firm that completes $150K of work in March but bills in April shows March understated and April overstated. Accruing revenue when earned provides accurate monthly performance visibility. Professional service firms should calculate accrued revenue monthly, particularly for engagements that span billing periods, to ensure each period reflects actual activity.

Real-world example

Tom's firm billed clients on the 15th of each month for prior period work. Month-end financials consistently understated revenue because half the month's work was unbilled. Implementing accrued revenue: at month-end, calculate the value of work performed since the last billing, record it as accrued revenue (asset) and as earned revenue (income). When the invoice is issued, reverse accrual against AR. Result: monthly revenue now reflects actual work performed, providing accurate performance visibility. Management can trust monthly numbers rather than wait for billing-cycle alignment.