Deferred revenue processing and unbilled revenue accrual

The most straight-forward scenario in customer invoicing includes the following steps:

• An organization sells some goods/services to a customer

• An invoice is created and sent out

• The customer pays the invoice amount and the invoice is closed in Accounts Receivable

In this case, a typical accounting entry for the invoice is as follows:

• DR Accounts Receivable

• CR Revenue

In other words, we recognize the revenue and record the receivable (from the customer) at the same time. However, there are many situations where this is not possible due to various reasons.

Sometimes, even if we invoice a customer, we cannot recognize the revenue and need to defer (postpone) the revenue recognition. This is known as deferred revenue processing. On the other hand, sometimes, we need to recognize the revenue, even if we have not invoiced the customer. This is known as unbilled revenue accrual.

Deferred revenue processing

Consider a customer invoice for the amount...