Accrued Income
Accrued income is the money a company has earned in the ordinary course of businessbut has yet to be received, and for which the invoice is yet to be billed to the customer.Mutual funds or other pooled assets that accumulate income over a period of time—but only pay shareholders once a year—are, by definition, accruing their income. Individual companies can also generate income without actually receiving it, which is the basis of the accrual accounting system.
Accrued Revenue
Definition
Accrued revenue refers to the amount a company has earned in the normal course of business but has not yet received, and the invoice has not yet been issued to the customer. This revenue is recorded as accounts receivable in accounting, reflecting the value of goods or services provided by the company but not yet paid for.
Origin
The concept of accrued revenue originates from the accrual accounting system. The accrual accounting system emerged in the early 20th century to more accurately reflect a company's financial position and operating results. Unlike the cash accounting system, the accrual accounting system requires revenue and expenses to be recorded when they occur, not when cash is actually received or paid.
Categories and Characteristics
Accrued revenue can be categorized into the following types:
- Sales Revenue: Revenue from sales that have been completed but not yet paid for.
- Service Revenue: Revenue from services that have been provided but not yet paid for.
- Interest Revenue: Interest that has been earned but not yet received.
The main characteristics of accrued revenue include:
- Reflects the value of goods or services already provided by the company.
- Recorded as accounts receivable in financial statements.
- Helps to more accurately reflect the company's financial position and operating results.
Specific Cases
Case 1: A software company provided a software development service worth 100,000 yuan to a client in September 2024 but has not yet issued an invoice or received payment. According to the accrual accounting system, the company would record 100,000 yuan of accrued revenue in its financial statements for September 2024.
Case 2: A bank earned 50,000 yuan in interest revenue in the third quarter of 2024 but has not yet received this amount. According to the accrual accounting system, the bank would record 50,000 yuan of accrued revenue in its financial statements for the third quarter.
Common Questions
Q: What is the difference between accrued revenue and cash revenue?
A: Accrued revenue refers to the amount a company has earned but not yet received, while cash revenue refers to the amount a company has actually received. Accrued revenue reflects the revenue at the time goods or services are provided, whereas cash revenue reflects the actual cash inflow.
Q: Does accrued revenue affect a company's cash flow?
A: Accrued revenue does not directly affect a company's cash flow because it only reflects amounts not yet received. However, long-term uncollected accrued revenue can negatively impact the company's cash flow.
