Accrued Revenue vs Accounts Receivable: What Are the Differences?
Did you know that 64 percent of business owners in the United States of America do their own bookkeeping? Accounting is difficult, especially if you don’t have a knack for numbers. Arguably the most confusing part of business accounting is understanding the differences between accrued revenue vs. accounts receivable.
Having a firm grasp of the differences between the two will save you time when you’re tracking your business’s income and outgoings. You’ll understand your accrued revenue and your accounts receivable. The good news is that you’ve found the perfect accrued revenue guide to learn from for your business’s bookkeeping needs.
Keep reading this article to learn more today!
What Is Accrued Revenue?
Accrued revenue is a form of revenue where you sell your goods or products to customers in exchange for payment. In the case of this form of revenue, you’ve rendered services or goods but haven’t received payment yet. You will need to engage in successful cash collections if you plan on adding accrued revenue to the company coffers.
It’s best to ignore doubtful accounts when you’re tallying up accrued revenue. You can then add that total to your overall revenue numbers. Most businesses choose to recognize accrued revenue as part of the overall revenue.
You can add the dollar amount to your accrued revenue as soon as you perform the necessary work for it. It gets added to your accrued revenue prior to sending the bill.
What Are Accounts Receivable?
Accounts receivable are different from accrued revenue for a number of reasons. Accounts receivable count as current assets for your organization. You should have the expectation that you can convert your accounts receivable into cash in the near future.
A big difference between accrued revenue vs. accounts receivable is that your accounts receivable will generate cash flow. Accrued revenue generates revenue for your accounts rather than cash.
It’s important to decide if you want to accept credit sales at your business. As soon as you send an invoice to a customer for goods or services you can add that dollar total to your accrued revenue. Once you bill the customer, that money gets added to your accounts receivable for easier bookkeeping.
You need to make sure that you’re prioritizing factoring accounts receivable financing into the equation as well. Keep in mind that you won’t have the cash in hand with accounts receivable. After your customer pays what they owe you can shift that money over to your cash balance on the balance sheet.
Now You Know the Difference Between Accrued Revenue vs. Accounts Receivable
Having a strong idea of the differences between accrued revenue vs. accounts receivable is important if you plan on taking over the bookkeeping duties for your small business. Accrued revenue happens when you provide goods or services but you haven’t billed the customer for it yet. Accounts receivable is what gets used after you bill the customer for services or goods but have yet to receive payment.
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