Accrued Revenue versus Deferred Revenue



Revenue Recognition
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Hira Aziz
Entrepreneur, Pakistan

Accrued Revenue versus Deferred Revenue

🔥NEW Accrued Revenue is an asset. It is recorded as a "Current Asset" in the Assets side of the balance sheet because it will give benefit in the near future when the company will receive cash in the near future. Moreover, it is recognized as an "Account Receivable" after the customer is billed by the company for the delivered goods or services until the bill is paid.
Deferred Revenue is a liability. It is recorded as a "Current Liability" in the Liabilities side of the balance sheet.

Let's see how accrued revenue is converted into accounts receivable in accounting treatment.

Accounting Treatment of Accrued Revenue
In accounting, Accrued Revenue is recorded with an adjusting entry at the year-end where you have delivered the goods but have not billed your customer yet.
Let's assume XYZ company hires an IT company to develop a website. The IT company completed and delivered the website at the year-end. But the IT company has not received any cash and even has not billed the customer yet. Here the initial entry would be:

When the company bills XYZ Company, the entry would be:

Here, the accrued revenue is converted into Account Receivable. Account Receivable is also an asset.

Now when the customer will pay the bill, the entry would be:

Here you can find details about the accounting treatment of deferred revenue.

Source: Book: Principles of Accounting Volume 1 Financial Accounting (2019) by Mitchell Franklin, Patty Graybeal, Dixon Cooper.

   

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