What is the journal entry for unbilled revenue?

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Meaning of Unbilled Revenue

Unbilled Revenue refers to the revenue earned by an entity by rendering the goods or services in the current period ie. sale has been recognized but the entity has not yet issued the corresponding invoices to the customer.

Unbilled Revenue arises in situations where
a. Issue of the invoice is delayed, or
b. Invoice is issued only after the entire project/contract is completed.

Unbilled Revenue is presented as a current asset in the balance sheet.

 

Journal Entry for Unbilled Revenue

1. Entry for recording the revenue as per the accrual method

Unbilled Revenue A/c Debit Increase in asset
 To Revenue (Sales) A/c Credit Increase in Income

We have debited Unbilled Revenue A/c because it is an asset for the supplier entity as the invoice will definitely be raised in the near future for the goods or services already rendered and the corresponding consideration is still receivable from the customer.

We have credited the Revenue (Sales) A/c because the goods or services have been rendered by the entity. Therefore, as per the accrual method, it is recognized as revenue/sales by the seller entity in the current period itself.

 

2. Entry when the invoice has been issued to the customer

Unbilled Revenue is converted to Accounts Receivable once the invoice is issued.

Accounts Receivable A/c Debit Increase in asset
 To Unbilled Revenue A/c Credit Reversal of unbilled revenue debited earlier as the invoice has now been issued

 

Examples of Unbilled Revenue

Example 1 – Issue of the invoice is delayed

Software Ltd completed a software development & installation project worth 150,000 for ABC Ltd on 10th March 20×1. But it did not immediately issue an invoice. It issued the invoice on 05th April 20×1.

Following journal entries will be passed in the books of Software Ltd;

1. Entry for recording the revenue on completion of the project on 10/03/20×1

Unbilled Revenue A/c Debit 150,000
 To Revenue (Sales) A/c Credit  150,000

 

2. Entry at the time of issue of invoice on 05/04/20×1

Accounts Receivable-ABC Ltd A/c Debit 150,000
 To Unbilled Revenue A/c Credit  150,000

 

Example 2 – Invoice is issued only after the entire project/ contract is completed

R&D Ltd entered into a contract for carrying out research & development activities for Chemical Ltd. They agreed upon a contract price of 10 million which will be entirely invoiced at the end of the project. Out of 10 million, 3 million is related to the research phase and 7 million are for the development phase.

Research activities were completed in January 20×1 and development activities in the month of March 20×1. The invoice was raised in the month of April 20×1 for the entire project.

 

Following journal entries will be passed in the books of R&D Ltd.

1. Entry on completion of research phase in January 20×1 because it has completed its research obligation under the contract

Unbilled Revenue A/c Debit 3 million
 To Revenue (Sales) A/c Credit  3 million

 

2. Entry on completion of the development phase in March 20×1 because it has completed its development obligation under the contract

Unbilled Revenue A/c Debit 7 million
 To Revenue (Sales) A/c Credit  7 million

 

3. Entry at the time of issuance of invoice to Chemical Ltd and for recording receivable in the books in April 20×1

Accounts Receivable – Chemical Ltd A/c Debit 10 million
 To Unbilled Revenue A/c Credit  10 million