Accrued revenues and accounts receivable are the assets of the company. However, certain things make them different.
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 provide to the customer yet, the invoice is not billed.
Both of these items are considered as revenue in the income statement.
For example, the company sells five transactions to its customers. The goods are already delivered to customers in all those five transactions.
There are only three transactions in that invoices have been issued to customers at the month-end, and the remaining two are still not 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 USD 3K and then Credit Saled Revenues USD3K. This is to ensure that sales revenue is completely recorded by the end of the month.
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 are 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 and credit sales revenues.
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 record as accrued revenues into accounts receivable.
Is accrued revenue receivable or 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 late issuing 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. Sales revenue $2K
Cr Accrued revenue $2K
As you can see, we still need to recognize $2K as sales revenues even though we are not billed to the customer yet. And 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 customer, 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 customer.
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.
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.