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.

An example of unrecorded revenue is when an employee who is engaged in consulting services neglects to complete her timesheet at the end of the month, so that the accounting staff does not record her billable hours in that month. Instead, she records the information after the accounting period has closed, so that the revenue must instead be recognized in the next period.

Another example is when a company is engaged in a multi-period project for a customer, and completes work during an accounting period, but is not contractually allowed to issue an invoice until a later accounting period. The controller elects not to accrue any revenue until the actual billing period. Thus, the firm has unrecorded revenue until such time as it records an invoice.

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.

Related Courses

Accountants' Guidebook 
How to Audit Revenue  
Revenue Recognition