Unbilled revenue is the revenue which the supplier already deliver goods or service but not yet issue an invoice to the customers. They recorded it in the separate accounts, the unbilled revenue account. The suppliers already provide service or goods to the customers but the invoices are not yet issued or delivered due to some reasons. Sometimes it not even records in the customers’ accounting record yet.
In our business operation, issuing the invoices may not be on time due to the nature of business. For example, in the construction business and cleaning service, the work is fully finished at the end of the accounting period. However, they need to complete some working documents before issuing invoices and the process takes a few days. Accountants need to record the revenue base on the matching principle. As the cost of service is mostly the payroll, so they are already recorded into the income statement. So we have to record the revenue as well, but the invoice is not issued, so we record it into unbilled revenue.
Unbilled Revenue Example
Company ABC provides electric installing service to the customers. Base on the process, the worker needs to complete the job and get the work completed document sign by the customer. Then they have to bring the working paper to accountants to prepare invoices to bill customers. At the end of the accounting period, three jobs are completed but the documents still pending due to customers are not around. So the accountants are not able to issue invoices before year-end. But they need to record revenue and the amount is $ 100,000 for the total of three jobs.
Please prepare the journal to record unbilled revenue and the required journal when invoices are issued.
- The company need to record the unbilled revenue into the income statement
- After the company issue invoices:
The company needs to reclass from unbilled receivable to accounts receivable in the balance sheet in next period. We reclass it to accounts receivable when the invoice issue with customer name, address, and other information. It will allow the accountants to control follow up with customers. The unbilled revenue is not adjusted as it already records in the prior year’s income statement.
Control of Unbilled Receivable
As we can see unbilled receivable is the current asset account which uses in contrast with the unbilled revenue journal entries. This account is the balance sheet account, so it will be brought forward to the next period. The unbilled revenue will stay in the current period only as it is the income statement item.
At the beginning of the next period, the responsible person should prepare the required documentation to issue invoices to the customers. And reclass from unbilled receivable to accounts receivable, the balance should not stay for a longer period of time.
First, the company should issue invoices as soon as possible, so we could collect money early. Second, the balance should reclass to accounts receivable, so accountants will be able to keep track and follow up with customers. Moreover, if we keep the balance outstanding for a long time, it will be a risk of error such as lose the document and so on.