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What are accrued revenues and when are they recorded?

Author:
Harold Averkamp, CPA, MBA

Definition of Accrued Revenues

Accrued revenues include service revenues, interest income, sales of goods, etc. which have been earned by a business, but the transactions are not yet fully processed and therefore are not recorded in the company’s general ledger accounts.

If it is the end of the accounting period, these amounts must be recorded to comply with the accrual method of accounting. By entering these on an adjusting entry dated for the last day of the accounting period, the amounts will be included on the period’s financial statements.

Example of Recording Accrued Revenues

Assume your company lent a supplier $100,000 on December 1. The loan agreement specifies that the $100,000 is to be repaid on February 28 along with $3,000 of interest for the three months of December through February. As of December 31, your company has not billed the supplier for the interest since it is not due until February 28. However, as of December 31, your company has earned $1,000 of interest (1/3 of $3,000). For the December financial statements to report the amount earned, the accountant must record an adjusting entry dated December 31 that debits $1,000 to Interest Receivable (a balance sheet account) and credits $1,000 to Interest Income (an income statement account).

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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