Accrued revenue rises when a business records sales without receiving payment for the goods or services sold as they do not invoice the customer at the time of the sale.
Accrued revenue in simple terms, is when a business sells its goods or services to the customer but does not expect payment at the time of delivery but in the near future. When an accrued revenue occurs, the company has to note two important dates – the first being the date at which the goods or services are provided to the customer. On this date, the business can record the sale in the sales account and can allocate the balance to the trade receivables account. Once the payment is received by the business, an entry in the cash/bank account is made and the amount previously added to the trade receivables account is then credited.
Many businesses accept credit sales mainly due to the fact that they may lose out on a lot of potential sales as numerous businesses look to buy on credit. This is because they do not have to pay instantly and thus get to deploy their capital in other places. Moreover, in several industries, the payment period is generally slow due to a number of reasons, such as low liquidity. Therefore, many businesses prefer to purchase goods and services on credit and many companies have to offer credit sales so that they do not lose such customers. Accrued revenue also helps the business analyze the long-term growth and profitability.
The only difference between accrued revenue and regular revenue is if the payment by the customer was done immediately. If the payment was done immediately the accounting treatment would be fairly simple: The bank or cash account would be debited whilst the sales account would be credited. If the payment was not done immediately then there would be two entries: