Accrued vs Deferred Revenue: Differences & Examples

Quick Links

Accrued Revenue vs Deferred Revenue: Differences and Examples

Nick Shah

Co-founder

10 Min

Explore this article with AI

Ask questions, get summaries, or uncover key takeaways from this article.

Key Takeaways

Accrued revenue: The work is done, and the cash hasn't arrived. It's an asset.
Deferred revenue: The cash has arrived, and the work isn't done. It's a liability.
Same root: Both are cut-off items that put revenue in the month the work happens.
Two questions for close: What did we deliver but not bill? What did we bill but not deliver?

Open any client file at month-end and you're really asking two questions. What did the client's business deliver that hasn't been billed? And what did it bill that hasn't been delivered?

The first is accrued revenue. The second is deferred revenue. They look alike on a cut-off checklist, but they land on opposite sides of the Balance Sheet, and either one can push revenue into the wrong month.

This guide compares the two with journal entries, a side-by-side timeline, and the review risks for each. For the full concept on the deferred side, see our deferred revenue guide.

What Is the Difference Between Accrued Revenue and Deferred Revenue?

Accrued revenue is earned before the cash arrives. Deferred revenue is cash received before it's earned. Accrued revenue is an asset, and deferred revenue is a liability.

Both exist because accrual accounting records revenue when work is done, not when money moves. The table compares them on the points reviewers check most.

Point of comparison	Accrued revenue	Deferred revenue
What happened first	Work was delivered	Cash was received
What is still missing	Invoice or payment	Delivery of the work
Balance Sheet side	Asset (receivable or contract asset)	Liability
Effect on the P&L	Revenue recorded now	Revenue recorded later
Typical entry	Debit receivable, credit revenue	Debit cash, credit deferred revenue
Main review risk	Revenue missed or booked late	Revenue booked too early

A simple way to remember the difference

Ask which one came first. If the work came first, it's accrued. If the cash came first, it's deferred.

Accrued: earned first, paid later
Deferred: paid first, earned later

Why Do Both Exist in Accrual Accounting?

Because the accrual method matches revenue to the period when the work happens. Without accruals and deferrals, your P&L would follow the bank balance, and monthly results would swing with payment timing.

Under ASC 606, an unbilled amount may be a receivable or a contract asset, depending on whether the right to payment depends on anything besides time. Deferred revenue is a contract liability. Selden Fox's overview of ASC 606 covers both terms.

Who Handles Each at an Accounting Firm?

The bookkeeper records both, the reviewer checks both at cut-off, and the owner signs off. What matters is that someone owns the two questions below for every client.

Bookkeeper: lists work delivered but not billed, and cash received but not earned
Reviewer: checks the lists against contracts, timesheets, and invoices
Firm owner: approves the entries and explains swings to the client

When Do You Record Accrued and Deferred Revenue?

At the end of every period, as part of cut-off. For accrued revenue, hunt for work done but not billed. For deferred revenue, hunt for cash received but not earned.

Event	Accrued revenue	Deferred revenue
Work done, no invoice yet	Record revenue and an asset	Not applicable
Invoice sent after work	Move the asset to accounts receivable	Not applicable
Cash received before work	Not applicable	Record a liability
Work delivered after cash	Not applicable	Release the liability to revenue

How Do You Record Each? A Side-by-Side Example

Let's run the same $9,000 through both cases. In the first, your firm delivers consulting in December and invoices on January 5. In the second, a client pays $9,000 in December for services from January to March.

Case	Entry	Debit	Credit	Amount
Accrued	December 31, work done	Accounts Receivable (unbilled)	Service Revenue	$9,000
Accrued	Payment received in January	Cash	Accounts Receivable	$9,000
Deferred	December, cash received	Cash	Deferred Revenue	$9,000
Deferred	January, February, March	Deferred Revenue	Service Revenue	$3,000 each month

Now the timeline. It shows how revenue and the Balance Sheet balance move month by month in each case.

Month	Accrued: revenue	Accrued: asset balance	Deferred: revenue	Deferred: liability balance
December	$9,000	$9,000	$0	$9,000
January	$0	$0 (paid)	$3,000	$6,000
February	$0	$0	$3,000	$3,000
March	$0	$0	$3,000	$0

Same $9,000 of revenue in both. Only the timing changes. For the deferred side in detail, see our deferred revenue journal entry guide.

Where Do They Appear, and Where Do Errors Happen?

Accrued revenue shows up as an asset on the Balance Sheet, as a receivable or contract asset. Deferred revenue shows up as a current or long-term liability. Both reach the P&L as revenue.

Error	Which side	What it looks like	Review check
Revenue booked only on invoice date	Accrued	Revenue lands in the wrong month	Compare work dates to invoice dates
Unbilled balance never clears	Accrued	An asset that grows each month	Age the unbilled balance
Advance invoice booked as income	Deferred	Revenue spike in the payment month	Match revenue to service dates
Liability never released	Deferred	A balance that stays flat	Run the roll-forward monthly

Both errors push revenue into the wrong month, which is why cut-off review should cover them together instead of as two separate chores.

Making the Close Predictable: All In One Accounting

All In One Accounting provides outsourced accounting, fractional controller, and CFO services to growth-minded entrepreneurs and nonprofits. It guarantees audit-ready financials every month, which doesn't leave much room for surprises at close.

The team uses Xenett's automated AI checks to surface issues before the close, and a central dashboard gives managers real-time visibility. Internal notes and sign-offs cut down the back-and-forth.

Their case study doesn't single out accrued or deferred revenue. Still, a repeatable close is what makes cut-off checks like these happen on time instead of when someone remembers. Read the full All In One Accounting case study.

How Xenett Can Help

Cut-off review only works when it runs the same way on every client. That's tough when each reviewer builds a checklist from scratch.

On the deferred side, Xenett's AI Accruals scans for advance invoices and proposes the recognition schedule for your approval. For unbilled revenue, the entries checklist lets you keep that review on the same close checklist as everything else.

AI Accruals, Deferred Revenue: builds the schedule behind the monthly release
Entries checklist: keeps the unbilled revenue review next to every other check
Anomaly detection: surfaces unusual revenue patterns before month-end

Add both questions to your month-end close checklist so cut-off never gets skipped.

Want to see it on your own files? Start your free 14-day trial (no credit card required) or book a 15-minute demo.

Two Questions Cover Both Sides

Accrued revenue is work ahead of the cash. Deferred revenue is cash ahead of the work. The accounting is a mirror image, and so is the review.

At every close, ask what you delivered but didn't bill, and what you billed but didn't deliver. Then check both balances against a schedule. If you'd like that check to run the same way on every file, try Xenett free. Setup takes under 10 minutes.

FAQ: Accrued vs Deferred Revenue

What is the difference between accrued and deferred revenue?

Accrued revenue is earned before cash arrives, so it is an asset. Deferred revenue is cash received before it is earned, so it is a liability. They are mirror images around the same cut-off date.

What is an example of accrued revenue?

Consulting delivered in December and invoiced in January is accrued revenue. Interest earned on a note but not yet received is another example. You record revenue in December.

What is an example of deferred revenue?

A client pays $9,000 in December for services delivered from January to March. The firm records a $9,000 liability and releases $3,000 to revenue each month.

What should you check at month-end cut-off for accrued and deferred revenue?

Ask two questions for every client: what was delivered but not billed, and what was billed but not delivered. Then tie the unbilled asset and the deferred revenue liability to supporting schedules before sign-off.

Do you reverse accrued revenue entries?

Sometimes. If your invoice will post revenue again, reverse the accrual to avoid double counting. Deferred revenue is not reversed, because it is released from a fixed schedule.

Is accrued revenue the same as accounts receivable?

Not exactly. Accrued revenue is earned but not yet billed. Once you invoice, it becomes accounts receivable. Depending on contract terms, unbilled amounts may be shown as a contract asset.

Download PDF