What is accrued revenue and how is it recorded?

• A. Revenue earned but not yet billed or collected; Debit Accounts Receivable, Credit Revenue.
• B. Revenue earned and collected; Debit Revenue, Credit Cash.
• C. Revenue earned but not yet billed; Debit Revenue, Credit Accounts Receivable.
• D. Revenue earned but not yet collected; Debit Revenue, Credit Accounts Receivable.

Answer: (A)

Accrued revenue is revenue earned in the current period but not yet billed or collected. The proper adjusting entry is to debit Accounts Receivable to recognize the asset representing the right to cash, and to credit Revenue to recognize the income in this period. This follows accrual accounting and the revenue recognition principle, which states that revenue is earned when the service is performed or goods are delivered, not when cash is received. Later, when you bill the customer or collect cash, you would record Cash (debit) and reduce Accounts Receivable (credit). The other options mix up the accounts or reverse the normal debtor/credit relationship for accrued revenue.