What is an Accrued Receivable?

Accrued receivables are recorded just before recording accounts receivables for credit sales.

The term accrued receivables is often used interchangeably with accounts receivables. The major difference between the both lies in the timing for issuing an invoice.

When a reporting entity cannot issue an invoice to its customers but is certain of revenue, it can record that revenue immediately through accrued receivables.

What is an Accrued Receivable?

Accrued receivable is a type of receivable for which an entity has not issued an invoice but earned the right to receive it in the future.

Accrued receivables may be a type of trade receivables like goods sold on credit terms, after-sale services provided on paid terms, and similar trade actions.

In other cases, accrued receivables may occur from non-trading activities of a business like accrued interest, tax refunds, insurance claims, and so on.

It is closely linked to the accounts receivable concept as it has some similarities. It occurs for businesses doing trade on credit terms and following the accrual accounting principles.

Most businesses these days follow accrual accounting practices. The recognition of accrued receivables is in line with accrual accounting practices as it helps the reporting entity to record revenue immediately.

When an Entity Should Record Accrued Receivables?

Reporting entities must decide on when to record accrual revenue and accrual receivables as both situations come with some delicate differences.

An entity can record accrued receivables when it is entitled to record revenue but cannot issue an invoice. The restrictions may come from the contract terms between both parties or the accounting practices followed by the reporting entity.

For example, a service provider offering services on hourly rates can record a certain income after working for a few hours or reaching a milestone as accrued receivable.

As the entity does not issue an invoice for a milestone or partial completion of the work, it cannot record the income under the accounts receivable heading.

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A reporting entity must carefully analyze the situation before recording accrual receivables. It must justify the recognition for the creation of accrual revenue and not issuing an invoice immediately.

If a reporting entity is in a position to issue an invoice for accrued income, it should record accrued revenue and accounts receivable entries instead of accrued receivables.

How to Record Accrued Receivable?

The foremost and important task of the reporting entity is to follow the accrual accounting principles when recording accrual and deferrals.

Here are a few key steps to follow when recording accrued receivables.

Identify the Revenue

The first step is to recognize revenue. A reporting entity must fulfill the contract terms before recognizing accrual revenue and receivables.

It can be delivering goods, offering a certain number of work hours, or any other milestone achievement as described in the contract between both parties.

Determine the Qualification

The second step is to determine the qualification of revenue as accrual. If an entity cannot issue an invoice immediately, it can record it as accrual receivable.

In many cases, a reporting entity will be able to issue an invoice but not receive the payment immediately. The transaction should be recorded as an accounts receivable entry in that case.

Classify as Accrued Revenue

Once you determine the qualification, the next step is to record the journal entry for the transaction as accrued receivable.

Proceed with the Invoice

When the entity is in a position to issue an invoice for accrued receivables, the amount will be recorded as accounts receivables.

It simply means the asset categories will change but not the cash or income accounts.

Record the Payment

The final step in the scenario will be to record the payment when received by the reporting entity.

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This step will involve the recording of reversal entries for accounts receivables and increasing the cash and income accounts respectively.

Journal Entry to Record Accrued Receivable

A reporting entity may record accrued receivables under the same general ledger account used for accounts receivable.

However, if an entity has a large number of accrued receivables, it should create a separate ledger account under this head.

The journal entry to record the initial transaction will be:

Accrued Receivable Account              Dr

Revenue or Sales Account                   Cr

When the entity issues an invoice for the full or partial revenue amount, it will record a reversal of the accrued receivable account.

If the entity cannot issue an invoice in an accounting period, it will continue to record the accrual revenue and reverse the revenue at the end of each accounting period for closing entries.


Suppose a construction company ABC Limited started a 12-month hotel construction project on April 1, 20xx. The contract between both parties entitles ABC Limited to issue invoices on a quarterly basis only.

ABC Limited’s accounting practices require the recognition of revenue and expenses on a monthly basis.

Suppose ABC Limited’s finance department analyzes the completed work and estimates accrued revenue of $ 300,000 for the month of March.

ABC will record the journal entry:

Account NameDebitCredit
Accrued Receivable$300,000 
Revenue or Sales $300,000

ABC proceeds slower in May and recognizes accrual revenue of $ 195,000 only.

Account NameDebitCredit
Accrued Receivable$195,000 
Revenue or Sales $195,000

It goes on to record accrual revenue of $385,000 in June:

Account NameDebitCredit
Accrued Receivable$385,000 
Revenue or Sales $385,000

At the end of June, 20xx, ABC Limited will be able to issue an invoice for the total amount of work done in this quarter. So, it will record a reversal entry to recognize income and remove accrual receivables. The Company can proceed with two entries; the first one is the reversal of the accrued revenue so far, and the last one is to record the final invoicing. Then, the Company is able to record the payment made by its customer in another entry.

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The reversal entry is as follows:

Account NameDebitCredit
Revenue or Sales$880,000 
Accrued Receivable $880,000

The invoicing entry to raise the actual invoice to its customer is as follows:

Account NameDebitCredit
Accounts Receivable$880,000 
Revenue or Sales $880,000

Then, the final entry to record the payment is as follows:

Account NameDebitCredit
Cash or bank$880,000 
Accounts Receivable $880,000

Using the accrual practice, ABC Limited has recorded a revenue of $300,000, $195,000, and $385,000 in the months of April, May, and June respectively instead of realizing it in a single entry of $880,000 at the end of June.

Accrued Receivable Vs Accounts Receivable

The distinction between both types of accruals is the timing of issuing an invoice to a customer.

If an entity is qualified to issue an invoice immediately for recognizable revenue, it will record an entry for accounts receivable.

If an entity cannot issue an invoice for recognizable revenue, it will record an entry for accrual receivables.

In many cases, a reporting can record both types of transactions under the same ledger account too.

Is Accrued Receivable the Same as Accrued Revenue?

Accrued receivables are closely linked to accounts receivable, they are recognized but unreceived revenue.

In accounting terms, both these terms represent the same thing but accrued revenue is more certain as it is recorded after issuing an invoice.

Accrued receivables can change as they are recorded only by the seller side and there is no confirmation from the buyer on the correctness of the amount usually.

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