Accrued Revenue - Overview, Pre-conditions, and Business Performance

Accrued revenue is revenue that has been earned by providing goods or services but for which no payment has been received yet. In other words, it indicates a payment that should be received after the goods and services it refers to have been provided.

Начисленный доход

Since it comes with the customer’s future obligation to pay, an accrued revenue account on the balance sheet will appear when the related revenue is first booked on the income statement Income Statement The Income Statement is one of a company's core financial statements that shows their profit and loss over a period of time. The profit or loss is determined by taking all revenues and subtracting all expenses from both operating and non-operating activities.This statement is one of three statements used in both corporate finance (including financial modeling) and accounting. .

As the payments are received, the credit account is reduced by the amount of cash received, with no further impact on the income statement.

Preconditions for Booking Accrued Revenue

To avoid abuses and for a correct representation of a company’s activities on its financial statements Financial Statement Notes Financial statement notes are the supplemental notes that are added to the published financial statements of a company. The notes are used to explain , regulators require that certain conditions are met before accrued revenue is booked:

  • The company must have delivered the products or services (or a portion of them) to its customers. If only a part of the products or services has been delivered, the company is generally able to book only the revenue for the portion delivered;
  • The company has reasonable certainty that it will be able to collect the payment;
  • There is persuasive evidence of an arrangement in the form of a written agreement, binding purchase or another form of digital evidence;
  • The price of the goods or services sold is fixed or easily determinable.

When Does Accrued Revenue Occur?

According to the rules of accrual accounting, revenue should be booked on the income statement when earned and not when the related payment has been received. A potential mismatch between the time a payment is made and when the related goods or services Products and Services A product is a tangible item that is put on the market for acquisition, attention, or consumption while a service is an intangible item, which arises from are delivered can create a situation where accrued revenue must be booked.

If the pre-conditions discussed are met, this can happen in several cases. For example:

  • When a company loans money to other companies or individuals;
  • When a company is involved in long-term projects and books revenue using the percentage of completion method;
  • When a company is working on a large order and books revenue based on milestones met.

Let us look at the cases a bit more in detail.

Accrued Revenue for Loans

When a bank or other company loans money for profit, it accrues interest revenue over the period of the loan, while the payment is generally made at specific points in time. Therefore, the company can report accrued revenue every month or quarter, even if the interest payment is received only once per year.

For example, Company A can lend $100,000 to company B in a one-year loan with a 6% interest rate Interest Rate An interest rate refers to the amount charged by a lender to a borrower for any form of debt given, generally expressed as a percentage of the principal. to be paid at the end of the year together with the full repayment of principal. Every quarter of the year, Company A reports $1,500 in revenue on the income statement and an equal amount as an asset on the balance sheet, although no cash inflow is reported. Only at the end of the year, the full amount of $6,000 is received, and the related asset on the balance sheet is reduced by the amount of revenue accrued until then.

The diagram below explains the various steps of the process:

Начисленная выручка - займы

Accrued Revenue for Long-Term Projects

When a company is working on a long-term project, it may be booking revenue according to the percentage of completion method. In this situation, the company is allowed to book revenue based on the costs incurred for the completion of the project.

Let’s take the example of Company A, which is working on a certain project worth $1,800,000. To complete the project, the company estimates to bear costs for $1,200,000 and expects the project to be completed in two years.

  • After the first year, the company has borne costs for $800,000, or two-thirds of the total. In this scenario, Company A is allowed to book two-thirds of the contract value ($1,200,000) as revenue for the year.
  • In the second year, the company bears the remaining one-third of the costs ($400,000) and is allowed to book the remaining one-third of the contract value as revenue for the year ($600,000).
  • The company receives the entire payment for the project only in year three. This generates a cash inflow and a reduction of assets on the balance sheet without any impact on the income statement.

The diagram below explains the various steps:

Долгосрочные проекты

Accrued Revenue for Milestones

When a company is working on an order for multiple items, it can book revenue according to the milestone method. The company can identify specific milestones and book revenue as those milestones are completed.

For example, this can be the case of a company that produces airplanes working on a bulk order. Let’s consider Company A, a producer of airplanes, which has received an order of four airplanes from an airline company. The total value of the contract is $800 million or $200 million per airplane. Company A will receive the payment when the entire order is delivered but has set the completion of each airplane as a milestone for booking revenue.

  • At the end of year 1, Company A has completed two airplanes and is working on the remaining two. According to the milestones set, Company A can book $400 million of revenue in year 1.
  • At the end of year 2, Company A has completed the remaining airplanes and can now book the remaining $400 million in revenue while receiving the payment from the airline company.

The diagram below shows the simple steps:

Вехи

Начисленная выручка и результаты бизнеса

Накопленная выручка особенно важна для компаний, которые предоставляют ссуды (например, банки), работают над долгосрочными проектами или оптовыми заказами сложных товаров.

Поскольку оценки и усмотрение руководства играют важную роль в таких ситуациях, важно проанализировать способ оценки и учета накопленной выручки. Учет по методу начисления может быть предметом злоупотреблений со стороны управленческих групп, которые хотят завышать показатели бизнеса, и аналитики и инвесторы должны понимать логику, используемую при учете начисленной выручки.

Дополнительные ресурсы

Finance является официальным поставщиком глобального сертификата Certified Banking & Credit Analyst (CBCA) ™ CBCA ™ Certification. Аккредитация Certified Banking & Credit Analyst (CBCA) ™ является мировым стандартом для кредитных аналитиков, который охватывает финансы, бухгалтерский учет, кредитный анализ, анализ денежных потоков. , моделирование ковенантов, погашение кредитов и многое другое. программа сертификации, призванная помочь любому стать финансовым аналитиком мирового уровня. Чтобы продолжить карьеру, вам будут полезны следующие дополнительные ресурсы:

  • Принцип начисления Принцип начисления Принцип начисления - это концепция учета, которая требует, чтобы операции регистрировались в том периоде времени, в течение которого они происходят, независимо от периода времени, когда получены фактические денежные потоки от операции. Идея принципа начисления заключается в том, что финансовые события предполагают сопоставление доходов
  • Бухгалтерский баланс Бухгалтерский баланс Бухгалтерский баланс является одним из трех основных финансовых отчетов. Эти заявления являются ключевыми как для финансового моделирования, так и для бухгалтерского учета. Баланс показывает общие активы компании и то, как эти активы финансируются за счет заемных средств или капитала. Активы = Обязательства + Собственный капитал
  • Начисленные расходы Начисленные расходы Начисленные расходы - это концепция учета по методу начисления, которая относится к типу расходов, которые признаются в момент возникновения, но еще не оплачены.
  • Прогнозирование статей отчета о прибылях и убытках Прогнозирование статей отчета о прибылях и убытках Мы обсуждаем различные методы прогнозирования статей отчета о прибылях и убытках. Прогнозирование статей отчета о прибылях и убытках начинается с выручки от продаж, а затем - с затрат.