What characterizes accrued revenue?

Accrued revenue is characterized as revenue that has been earned but not yet received. This occurs in situations where a company provides goods or services to a customer and recognizes the revenue at the point of delivery or service completion, even if the cash payment has not yet been made.

In accrual accounting, the matching principle dictates that revenues must be recognized when they are earned, regardless of when the cash is received. This reflects a true financial position, where income is recorded at the time of service rather than when payment is exchanged. For example, if a company completes a service for a client, it would recognize the revenue at that point, creating an asset in the form of accounts receivable until the client pays.

This concept is important for understanding a company’s revenue and accounts receivable, highlighting the timing differences between cash flows and the recognition of income on the financial statements.