Accrued Revenue vs Accounts Receivable - Differences and Examples

Accrued revenue is money a business has earned but has not yet billed or invoiced. On the other hand, accounts receivable refers to money a business has invoiced but is yet to receive. Understanding the difference between accrued revenue and accounts receivable will help you accurately report business finances and manage cash flow.

This guide will take a look at accrued revenue vs accounts receivable, discuss their importance and share examples to help you understand both accounting concepts.

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What is accrued revenue and why is it important?

Accrued revenue is income a business has earned for services rendered but hasn’t billed or invoiced yet. Accrued revenue is common among service-based companies that provide services before invoicing or subscription-based companies that receive payments periodically.

The Financial Reporting Standard applicable in the UK and the Republic of Ireland recognises revenue when a business has provided a product or service to a customer even though the customer may be yet to pay¹. This is because the business has already fulfilled its part of the contract, which makes the customer legally obligated to pay, and their payment a matter of time.

Here's a look at some of the importance of recording accrued revenue:

• Recording revenue immediately the business earns it ensures that records are up-to-date and transparent
• Accrued revenue gives you a more realistic view of your business' financial health, performance and profitability which can help boost investor confidence
• Recording revenue immediately after earning it improves cash flow forecasting, financial planning and decision-making
• Monitoring accrued revenue helps you identify potential issues in your billing activities as high accrued revenue may indicate inefficiencies that can affect cash flow
• Tracking accrued revenue enables you to see how sales directly impact profit

What is accounts receivable and why is it important?

Accounts receivable (AR) refers to money owed to the business by clients or customers. Here, the company has provided the products or services and sent an invoice, but the customer or client has yet to pay.

This often happens when a business extends a line of credit to a customer with specific payment terms. The payment window could be a few days, months or even years.

Accounts receivable is an integral part of every business' operations. Like accrued revenue, accounts receivable is treated as an asset in the balance sheet because it is money owed to the company for services or goods delivered.

AR processes involve tracking and managing customer payments, from sending invoices to reconciling payments and generating reports.

Here are some of the importance of accounts receivable for financial management:

• Accounts receivable is an indicator of a business's financial health as it shows how much money the business is expecting to receive
• Effective AR processes ensure better and timely payment collections, which improves cash flow and revenue
• With proper AR processes, you can reduce bad debt losses and cash shortages
• Accounts receivable processes create an opportunity to improve customer relationships with professional, prompt and timely communication
• AR metrics and cash flow reports help you monitor progress and identify areas for improvement
• Keeping track of accounts receivable helps with securing loans and investments, as investors often use AR to assess a business's financial strength

Accrued revenue vs accounts receivable: key differences

Accrued revenue and accounts receivable refer to money a business earned but not yet received. Although they are both treated as assets in the balance sheet, they have some slight differences.

Here’s a comparison of accrued revenue vs accounts receivable:

Accrued revenue example

Imagine a marketing agency secures a 6-month contract to provide social media management services for a client. The contract is worth 18,000 GBP, but the agency will invoice the client at the end of the 6 months.

Every day, the business provides social media management services to the client, including creating posts, engaging with the audience and analysing performance.Under accrual accounting, the agency earns 3,000 GBP monthly even though it doesn't invoice the client until the end of the 6-month contract. This method helps the business keep an accurate record of its profitability.

Now, imagine the business only records income after it has been received. It means that the income the company records from the client every month will be 0 GBP, making it appear unprofitable during those months. Then at the end of the 6-month contract, a sudden jump of 18,000 GBP will make it seem like a very lucrative month when in fact, the business has earned the same amount every month during the contract period.

This accrued revenue example shows that recording accrued revenue gives a more accurate picture of a business's financial health and avoids misleading financial reports.

Accounts receivable example

Let's take the marketing agency from the earlier example. After delivering social media management services to the client for 6 months, they send an invoice for 18,000 GBP, payable within 30 days. As soon as the agency sends the invoice, the accrued revenue becomes accounts receivable because the agency has formally billed the client, and the money is now legally owed.

Accounts receivable is recorded as an asset in the balance sheet since the business has rendered the service and the client is legally obligated to pay. As soon as the client pays cash, the accounts receivable balance is reduced, and the business records the amount received in its accounts.

FAQs - accrued revenue vs accounts receivable

Here are some commonly asked questions:

What is the main difference between accrued revenue and accounts receivable?

The main difference between accrued revenue and accounts receivable lies in whether the business has invoiced the customer or not. Accrued revenue occurs when a business delivers a product or service but hasn’t sent an invoice yet. Meanwhile, accounts receivable is money that has been invoiced but yet to be paid.

Is accrued revenue an asset?

Yes. Accrued revenue is regarded as an asset in the balance sheet. This is because the business has earned the money since it has already provided the services or products. The customers are legally obligated to pay, and it is often a matter of time before they pay.

Is accrued revenue recorded before or after an invoice is sent?

Accrued revenue is recorded before an invoice is sent. Accrued revenue becomes accounts receivable after the business issues an invoice to the customer or client.

When does accrued revenue turn into accounts receivable?

Accrued revenue becomes accounts receivable when the business sends an invoice to a customer for goods and services already provided.

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Sources used:

Sources last checked on date: 23-Jun-2025