accrued revenue

Examples of accrued revenue in the following topics:

• Terminology of Accounting

  • The cash basis of accounting, or cash receipts and disbursements method, records revenue when cash is received and expenses when they are paid in cash.
  • The term accrual is also often used as an abbreviation for the terms accrued expense and accrued revenue.
  • Accrued revenue (or accrued assets) is an asset, such as unpaid proceeds from a delivery of goods or services, when such income is earned and a related revenue item is recognized, while cash is to be received in a later period, when the amount is deducted from accrued revenues.
  • An example of an accrued expense is a pending obligation to pay for goods or services received from a counterpart, while cash is to be paid out in a latter accounting period when the amount is deducted from accrued expenses.

• Valuing Notes Receivable

  • Accrued revenue (or accrued assets) is an asset such as proceeds from a delivery of goods or services, at which such income item is earned and the related revenue item is recognized, while cash for them is to be received in a latter accounting period.
  • At that point its amount is deducted from accrued revenues.

• Importance of Recognition and Measurement

  • Accrued expense allows matching future costs of products to the proceeds from their sales prior to paying out such costs.
  • Accrued expenses are a liability with an uncertain timing or amount; the uncertainty is not significant enough to qualify it as a provision.
  • Accrued expenses shares characteristics with deferred revenue.
  • Deferred expenses share characteristics with accrued revenue.
  • One difference is that proceeds from a delivery of goods or services are an asset to be covered later, when the income item is earned and the related revenue item is recognized; cash for the items is received in a later period—when its amount is deducted from accrued revenues.

• Recognizing Notes Receivable

  • In accounting, notes receivables are accounts to keep track of accrued assets that have been earned but not yet received.
  • In accounting, notes receivables are accounts to keep track of accrued assets that have been earned but not yet received.
  • To indicate the dual nature of these adjustments, they record a related revenue in addition to the asset.
  • We also call these adjustments 'accrued revenues' because the revenues must be recorded.
  • To record a journal entry for a sale on account, one must debit a receivable and credit a revenue account.

• Reversing Entries

  • Most often, the entries reverse accrued revenues or expenses for the previous period.
  • Reversing entries help prevent accountants and bookkeepers from double recording revenues or expenses.
  • The goal of the reversing entry is to ensure that an expense or revenue is recorded in the proper period.

• Differences Between Accrual-Basis and Cash-Basis Accounting

  • Expenses incurred in the same period in which revenues are earned are also accrued for with a journal entry.
  • Just like revenues, the recording of the expense is unrelated to the payment of cash.
  • The cash method of accounting recognizes revenue and expenses when cash is exchanged.
  • For a seller using the cash method, revenue on the sale is not recognized until payment is collected.
  • Just like revenues, expenses are recognized and recorded when cash is paid.

• Growth

  • During the growth stage, the public becomes more aware of the product; as sales and revenues start to increase, profits begin to accrue.
  • During this stage, the product or the innovation becomes accepted in the market, and as a result sales and revenues start to increase .
  • Profits begin to be generated, though the break even point is likely to remain unbreached for a significant time--even until the next stage, depending on the cost and revenue structures.
  • Profitability begins to rise: revenues begin to exceed costs, creating profit for the company

• Gain Contingencies

  • If the gain is probable and quantifiable, the gain is not accrued for financial reporting purposes, but it can be disclosed in the notes to financial statements.
  • This constraint also encourages the omission of revenues and gains until those gains are realized.
  • Thus, for a gain contingency, only a realized gain is accrued for and disclosed on the income statement.
  • However these gains should only be accrued when the gain is realized.

• Differences Between Accrued and Deferred Expenses

  • Accrued and deferred expenses represent the two possibilities that can occur due to timing differences under the matching principle.
  • Accrued expenses and deferred expenses are two examples of mismatches between when expenses are recognized under the matching principle and when those expenses are actually paid.
  • An accrued expense is a liability that represents an expense that has been recognized but not yet paid.
  • Since the supplier delivered the goods and the reseller already generated revenues from the sale of those goods, it must recognize the associated expense.
  • Accrued and deferred expenses are both listed on a company's balance sheet.

• Other Current Liabilities: Sales Tax, Income Tax, Payroll, and Customer Advances

  • Sales tax payable can be accrued on a monthly basis by debiting sales tax expense and crediting sales tax payable for the tax amount applicable to monthly sales.
  • Net earnings are generally considered gross revenue minus expenses.
  • Income tax payable can be accrued by debiting income tax expense and crediting income tax payable for the tax owed; the payable is disclosed in the current liability section until the tax is paid.
  • Deferred revenue is, in accrual accounting, money received for goods or services that have not yet been delivered and revenue on the sale has not been earned.
  • According to the revenue recognition principle, the deferred amount is recorded as a liability until delivery is made, at which time it is converted into revenue.