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Accrued revenue is income a company has earned, but not yet invoiced and/or received.  It comes from accrual accounting, which requires income and expenses to be booked in the period they are earned or incurred.

Accrued revenue is an asset on a company’s balance sheet.  It is commonly used in service and construction industries where there are long periods of work under a contract that calls for few billing periods.

For instance, Wickholm Corp. hires Bongo Construction to build a $24 million office building.  The building will take 24 months to complete, and Bongo starts the project on January 1st.  Bongo Construction is a very efficient company, and each month they complete 1/24th of the building.  The contract calls for Bongo to invoice Wickholm Corp. in four equal installments: the first invoice is due on June 30 of year 1, the second on December 31 of year one, the third on June 30 of year 2 and the fourth on December 31 of year 2. 

If Bongo only recognized income when it invoiced Wickholm Corp., it would show no income from January through May, and then recognize $6 million in June. 

Using accrual accounting, Bongo will accrue 1/24th ($1 million) of the construction contract each month.  Therefore, Bongo’s revenue will be better matched against the construction costs incurred to produce that revenue.

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