Accrued Revenue

Accounting is perhaps one of the most jargonized of all financial fields. As a student of accounting, you will soon realize that there are thousands of terms and concepts to understand. The trick is not to get lost in semantics and to focus on the underlying meaning.

In the whole business cycle, there are two factors, which must balance themselves. They are expenses and revenue. As long as revenues balance out the expenses and cash is still left over, a business has managed to sustain itself. Accounting is all about monitoring this balance and reporting it clearly to evaluate the financial health of a company, at any point of time.

One of the prime factors of concern is of course the revenue generated by the business and the time frame in which that revenue is actually received, as part of the cash conversion cycle.

Definition
'Accrued' is anything that's piled or accumulated over a considerable period of time. Revenue is defined as the cash received by a company in return for the services provided to customers or products sold. Accrued revenue is the accumulated revenue of a business, which is yet to be actually received in cash. It is the sum of accounts payable amounts which have been pending payment till the date of reportage.

If you have studied the cash flow cycle of any business, you will know that payment for service and goods are not made immediately by most clients. There is usually a fixed period of time provided to a customer or client to clear dues. This introduces a lag in the flow of cash which is directed towards the company.

This is especially true in case of the service industry where payments are delayed. Thus accrued revenue journal entry presents the fraction of revenue that is yet to be received by a business. Since it is a sum of money that is yet to be received, it is considered to be an asset of the company.

Calculation

To calculate the value, you must add up the accounts receivable amount for every year, since the inception of the business cycle, which have not been paid by clients. In bookkeeping, you can show that value as an asset on the balance sheet, when applying for a loan or pitching your case for external investment in your company.

To summarize it all, it is the amount of receipts or payments that are yet to be received by a company, in lieu of its services provided or goods sold at any point of time in the fast. Putting it in even simpler words, one could say that it is the sum of accounts receivable amount, which has been piled over for an extended period of time. It is the revenue that is guaranteed to the company, but not yet received in cash. That makes it one of the most important of factors, which must be included in the financial report of any business.