Accrued revenue: How to record + 4 journal entry examples

Recording accrued revenue correctly keeps your financial statements accurate and compliant with GAAP and IFRS standards. This guide covers what accrued revenue is, how it differs from deferred revenue, when it applies to SaaS businesses, and how to record it with journal entries.

What is accrued revenue?

Accrued revenue is money you've earned by delivering goods or services but haven't billed or collected yet. Under accrual accounting, revenue gets recognized when it's earned, regardless of when cash changes hands.

For SaaS companies, this happens when you deliver a service or complete part of a subscription period before the customer pays.

Here's the thing: The timing of payment doesn't determine when revenue exists. A consulting firm that finishes a project in December but invoices in January still records that revenue in December.

This approach gives stakeholders a realistic view of how much value the company created during a specific period.

For SaaS companies, accrued revenue shows up in situations like:

• Mid-cycle upgrades where a customer adds seats before the next billing date.
• Services delivered ahead of an invoicing schedule.
• Usage-based charges calculated at month-end but billed later.
• Setup fees or migration services completed before final billing.

Accrued revenue is an asset on the balance sheet. It is current if you expect to bill or collect it within a year, and long‑term if it will take longer. It signals that customers owe you money for work already done.

Accrued revenue vs. deferred revenue: What's the difference?

Accrued revenue and deferred revenue are opposites in accounting. Both relate to timing mismatches between service delivery and payment, but they work in different directions.

• Accrued revenue: You've done the work. Payment comes later. This creates an asset because someone owes you money.
• Deferred revenue: You've received payment. Work comes later. This creates a liability because you owe the customer a service.

A quick example: If a SaaS company collects $12,000 upfront for an annual subscription, that payment is deferred revenue.

The company recognizes $1,000 each month as it delivers the service. If the same company provides an extra month of service without billing yet, that unbilled amount is accrued revenue.

Accrued revenue vs. accounts receivable: Key differences

These two terms get confused often, but they represent different stages of the revenue cycle.

• Accrued revenue is income earned before you've sent an invoice. The customer hasn't been billed yet, so there's no formal request for payment.
• Accounts receivable is income where you've already sent an invoice. The customer knows they owe you and has received documentation.

In practice, accrued revenue converts to accounts receivable once you issue the invoice. Think of accrued revenue as the precursor. A law firm completes case work in week one (accrued revenue), sends the bill in week two (accounts receivable), and collects payment in week three (cash).

When does accrued revenue occur?

SaaS businesses encounter accrued revenue in several common scenarios:

• Mid-cycle plan changes. A customer on a monthly plan upgrades from 10 seats to 15 seats on day 15. The prorated charge for those 5 extra seats during the remaining half-month is accrued revenue until the next invoice goes out.
• Usage-based billing. Companies that charge based on API calls, data storage, or compute hours often calculate usage at month-end. If the billing cycle doesn't align with the calendar month, some usage gets recorded as accrued revenue.
• Professional services. Implementation fees, training sessions, and data migration work often happen before final billing. Each completed milestone creates accrued revenue.
• Milestone-based contracts. Enterprise deals sometimes tie payment to specific deliverables. As your team completes each phase, the associated revenue accrues even if invoicing waits until project completion.

Two principles behind accrued revenue

Accrued revenue follows two foundational concepts in accrual accounting.

The revenue recognition principle

Revenue gets recorded when it's earned, not when cash arrives. For SaaS, "earned" typically means the service has been delivered or made available for the period in question. A customer who pays in January for February access generates revenue in February, not January.

This principle exists because cash timing can mislead stakeholders. A company might look unprofitable in a month when it delivered tons of value, simply because invoices went out late. The revenue recognition principle fixes that distortion.

The matching principle

Expenses should land in the same period as the revenue they helped create. If you pay a sales commission for a deal closed in March, you often record that commission as an asset and then spread the cost over the months when you earn the related revenue.

For accrued revenue specifically, the matching principle supports recording income in the period when your team did the work. This keeps profit margins accurate and helps identify which activities actually generate returns.

How to calculate accrued revenue

Calculating accrued revenue requires knowing the total contract value and how much of the obligation you've fulfilled.

Formula: Accrued Revenue = Total Contract Value × (Work Completed ÷ Total Service Period)

Step-by-step process:

1. Identify the total contract value or expected revenue.
2. Determine the full service period or project timeline.
3. Measure how much of the work is complete (by time or milestones).
4. Multiply the contract value by the completion percentage.
5. Record the result as accrued revenue.

Example calculation:

An enterprise SaaS company signs a $60,000 contract for a 12-month implementation project. After 4 months, the team has completed one-third of the work but hasn't billed the customer yet.

Accrued Revenue = $60,000 × (4 ÷ 12) = $20,000

The company records $20,000 as accrued revenue on its balance sheet. Once the invoice goes out, that amount moves to accounts receivable.

How to record accrued revenue: Journal entries

Recording accrued revenue involves adjusting journal entries that recognize income before payment arrives. Here's the standard process.

Step 1: Record the accrued revenue at period end

When you've earned revenue but haven't billed the customer, make this entry:

This entry increases assets (you're owed money) and increases revenue (you've earned income).

Step 2: Reverse the accrual when invoicing

Once you send the invoice, reverse the accrued revenue entry:

Step 3: Record the standard accounts receivable entry

Now record the invoice through normal channels:

Step 4: Record cash collection

When the customer pays:

Some companies skip the reversal step and simply reclassify accrued revenue to accounts receivable. Either approach works as long as you apply it consistently.

Accrued revenue examples for SaaS companies

Example 1: Mid-cycle seat additions

CloudSync sells project management software at $50 per user per month. Customer ABC adds 10 users on day 16 of a 30-day month. By month-end, CloudSync hasn't invoiced for these seats yet.

Accrued revenue = $50 × 10 users × (15 days ÷ 30 days) = $250

CloudSync records $250 as accrued revenue until the next billing cycle.

Example 2: Usage-based overage

DataVault charges $0.10 per GB of storage above a 100 GB base tier. Customer XYZ uses 250 GB in November, creating a 150 GB overage. DataVault bills usage quarterly in January.

Accrued revenue = 150 GB × $0.10 = $15

DataVault records $15 in accrued revenue for November. The same calculation repeats for December, with all charges converting to accounts receivable in January.

Example 3: Implementation services

IntegratePro sells a $24,000 implementation package delivered over 6 months. After 2 months, the team has completed the onboarding and data migration phases, representing 40% of the total project scope. The contract allows billing only at project completion.

Accrued revenue = $24,000 × 0.40 = $9,600

IntegratePro recognizes $9,600 in accrued revenue to reflect work completed.

4 common mistakes when recording accrued revenue

1. Forgetting to reverse accruals. If you record accrued revenue but don't reverse it when invoicing, you'll double-count income. Always pair accrual entries with reversal entries.
2. Inconsistent recognition methods. Switching between time-based and milestone-based recognition mid-project creates confusion. Pick one approach and document it.
3. Ignoring materiality. Small accrued revenue amounts might not justify the tracking overhead. Set a threshold below which you handle timing differences differently.
4. Misclassifying long-term contracts. If payment won't arrive for over a year, accrued revenue may belong in long-term assets rather than current assets.

Why accrued revenue matters for SaaS metrics

Accurate accrued revenue tracking affects several key SaaS metrics:

• Monthly recurring revenue (MRR). Mid-cycle changes create accrued revenue that should factor into your MRR calculations for the period when service was delivered.
• Revenue forecasting. Understanding accrued revenue patterns helps predict cash flow. You've earned the money, but it hasn't arrived yet.
• Customer lifetime value. Proper revenue recognition ensures LTV calculations reflect actual value delivered, not billing timing quirks.
• Compliance reporting. ASC 606 and IFRS 15 require revenue recognition tied to performance obligations. Accrued revenue accounting supports these standards.

FAQs

Is accrued revenue an asset or a liability?

Accrued revenue is an asset on the balance sheet. It is current if you expect to bill or collect it within a year, and long‑term if it will take longer.

It represents money owed to your company for services already delivered. Deferred revenue is the liability counterpart, representing money received for services not yet provided.

What's the difference between accrued revenue and unbilled revenue?

These terms mean the same thing. Both describe revenue earned but not yet invoiced. Some companies use "unbilled revenue" in their chart of accounts, while others prefer "accrued revenue."

How does accrued revenue affect cash flow statements?

Accrued revenue doesn't affect cash flow directly because no cash has changed hands. The cash flow statement reflects actual money movement. However, accrued revenue signals future cash inflows that will appear in subsequent periods.

When should SaaS companies recognize accrued revenue?

SaaS companies should recognize accrued revenue when they've satisfied performance obligations but haven't invoiced yet. This typically happens with mid-cycle upgrades, usage-based charges calculated before billing, or professional services completed ahead of invoicing.

Simplify accrued revenue tracking with Orb

Tracking accrued revenue manually works until your pricing gets complicated. Usage-based models, hybrid plans, and mid-cycle changes create timing mismatches that spreadsheets struggle to handle.

Orb is the billing platform that helps SaaS and AI companies handle these complexities without building custom infrastructure.

Here's how Orb supports accurate accrued revenue management:

• Ingest raw usage data for accurate billing. Orb ingests raw usage events so you can define your own billable metrics. Use the Orb SQL Editor or a visual editor to create and modify metrics without engineering work.
• Decouple usage from pricing logic. With Orb RevGraph, usage data is decoupled from pricing logic. This means invoices remain accurate and up-to-date even as you change pricing models, eliminating manual reconciliation between what customers used and what they owe.
• Test pricing changes before going live. Orb Simulations uses your historical data to preview how different pricing models affect revenue and usage outcomes. Finance and product teams can make informed decisions before rolling out changes.
• Handle complex billing scenarios automatically. Mid-cycle upgrades, prorated charges, and usage-based overages all create accrued revenue situations. Orb calculates these amounts in real time so your accounting team always has current data.
• Get implementation support from billing experts. Orb provides dedicated implementation guidance, strategic benchmarking, and ongoing business reviews. Every pricing decision gets backed by data and expertise.

Ready to simplify your accrued revenue tracking?Explore Orb's flexible pricing to find the right fit for your billing complexity and growth stage.