Accrued revenues and accounts receivable are the current assets that are reported in the balance sheet of the company. Accrued revenues, sometimes called contract assets are the revenues that a company accrued on the basis that they expected to receive from the goods or services that they already provided, but not yet billed. Account receivable are those revenue transactions that the company already billed, but not yet paid by the customer.
Generally, accounts receivable are the outstanding invoices that the company issues to the customers, and the customers still do not make payments to those invoices.
The main difference between account receivables and accrued revenues is the outstanding amount that is due from customers from the invoices billed to them. Accrued revenue on the other hand is the amount that the company should earn from the goods or services that are provided to the customer yet, the invoice is not billed.
Both of these items are considered as revenue in the income statement.
Example:
For example, the company has five sales transactions to its customers. The goods are already delivered to customers in all those five transactions.
There are only three transactions in which invoices have been issued to customers at the month-end, and the remaining two have still not been issued yet.
In this case, the three transactions that the accountant had issued invoices to the customers need to record these transactions as accounts receivable.
For example, if these three invoices amounted to USD3K, the accounting records would be debit accounts receivable USD3K and then Credit Saled Revenues USD3K. This is to ensure that sales revenue is completely recorded by the end of the month.
Here is the journal entry:
Dr. Account receivable USD3K
Cr Sales revenue USD3K
Memo: To record three sales transactions that the company made to the customer as per invoice.
The accountant still needs to recognize those two transactions as revenue for the other two transactions to which the accountant has not issued invoices. This is to comply with IAS 18.
In this case, assuming the amount of these two transactions is USD2K. The accountant must recognize USD2K as revenues in the income statement and accrued revenue in the balance sheet under current asset categories.
The entry would be debit accrued revenues under the current assets account of the balance sheet and credit sales revenues in the income statement.
Here is the journal entry of accrued revenues:
Dr. Accrued revenues USD2K
Cr Sales revenue USD2K
Memo: To record two sales transactions that the company made to the customer that have not yet been billed.
The account will need to issue these two invoices to customers in the following month. And, once the invoices are issued, accountants need to move these two transactions that are recorded as accrued revenues into accounts receivable.
Here is the journal entry or the adjusting entry to record an accrued revenue:
Dr. Account receivable USD2K
Cr Accrued revenues USD2K
Is accrued revenue receivable or payable?
Accrued revenues are the receivable account that is recorded as current assets in the balance sheet of the company. It is not account payable.
In some case, the company already supply goods or render services to its customer but, based on the payable term or negotiation with its customer, the company cannot bill.
Sometimes, the late internal process of the company could lead to the late issuing of invoices to customers. These are the main reasons causes the company records those unbilled sales transactions as accrued revenues rather than accounts receivable.
Let’s see the entries below,
Dr. Accrued revenue USD2K
Cr Sales revenue USD2K
As you can see, we still need to recognize USD2K as sales revenues even though we are not billed to the customer yet. Accrued revenues here are part of the receivable account, which is not payable.
How Do We Recognize Accrued Revenue?
Before we discuss the recognition of accrued revenues, let us discuss the recognition of the revenue. When the company sells goods or services to its customers, the control of those goods or services is transferred from the company to the customers.
At this time, the company could recognize the number of sales of those goods or services to its customers.
At this time, the company could record those amounts as sales revenues in the income statement or just accrue those revenues, which is the same class of account as revenue. The main difference between revenues and accrued revenues is billing or unbilled only.
What is the similarity between account receivable and accrued revenue?
The similarity of accounts receivable and accrued revenue is both accounts are the current assets that the company recognizes as the result of goods or services that the company made to its customers and not yet paid. Accounts receivable and accrued revenue are the financial assets.
Conclusion:
Therefore, the main difference between accrued revenues and accounts receivable is that accrued refers to the amounts that customers owe the company based on the services or goods the company provided, but invoices are not billed while accounts receivable are the outstanding invoices that customers still have not paid.
Both accrued revenues and accounts receivable are the current assets of the company.