Unrecorded revenue definition

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What is Unrecorded Revenue?

Unrecorded revenue is revenue that an entity has earned in an accounting period, but which it does not record in that period. The business typically records the revenue in a later accounting period, which is a violation of the matching principle, where revenues and related expenses are supposed to be recognized in the same accounting period.

The correct accounting treatment for unrecorded revenue is to accrue revenue in the period when the revenue is earned, using a credit to the Accrued Revenue account, and a debit to the Accounts Receivable account. You would then reverse this entry in the period when the customer is invoiced. The reversed entry offsets the revenue recognized through your creation of an invoice, so that no revenue is recognized in this later period.

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Examples of Unrecorded Revenue

Here are five examples of unrecorded revenue:

  • Consulting services rendered but not invoiced. A consulting firm completes a project for a client in December but delays sending the invoice until January. The revenue earned in December remains unrecorded until the invoice is issued and recorded in the next accounting period.

  • Interest earned on investments. A company has investments that accumulate interest monthly. If the interest earned for December is not recorded until it is received in January, it remains as unrecorded revenue for the previous period.

  • Rental income earned but not billed. A property owner provides rental space and the tenant uses it throughout December. However, if the landlord does not bill the tenant until January, the rental income earned in December is unrecorded in that period.

  • Completed sales with deferred invoicing. A manufacturing company delivers goods to a retailer in late December but, due to internal processes, delays invoicing until January. The sales revenue for December is unrecorded until the invoice is issued.

  • Subscription services provided but not recorded. A software company delivers a month of service to a customer under an annual subscription plan. If the company records revenue only when payments are received, the portion earned in December may remain unrecorded if the payment arrives in January.