How is accrued revenue calculated?

Accrued revenue is calculated by recognizing services that have been performed but not yet billed. This concept is essential in accrual accounting, where revenues are recorded when they are earned, rather than when cash is received. For instance, if a company completes a service for a client but has not yet issued an invoice, the revenue from that service needs to be recognized to accurately reflect the company's financial position and performance during that accounting period.

This practice helps ensure that the financial statements provide a true representation of the company's activities by acknowledging all earned income, including those not yet billed. By doing so, it adheres to the revenue recognition principle, which maintains that revenue should be recognized when it is earned, regardless of the timing of cash transactions.