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Unbilled Revenue: When Work Is Earned But Not Yet Invoiced
Unbilled revenue (sometimes called accrued revenue or contract assets) is income earned but not yet invoiced — common in services, consulting, and milestone-based contracts. Skip it and your income statement understates the period's earnings.
Unbilled revenue is revenue earned by a business through delivering goods or services for which an invoice has not yet been issued. It's recognized as both revenue (on the income statement) and an asset called "unbilled revenue" or "contract assets" (on the balance sheet) at period-end, then reclassified to accounts receivable when the invoice is issued.
Common in professional services billed in arrears, milestone-based contracts, and percentage-of-completion construction work.
Key Takeaways
- Unbilled revenue exists when services or goods have been delivered but no invoice has been issued.
- Required under U.S. GAAP and ASC 606 — earned revenue is recognized regardless of invoice timing.
- Most common in professional services (consulting, legal, accounting), milestone-based contracts, and construction.
- Recorded as a debit to "Unbilled Revenue" or "Contract Assets" (balance sheet asset) and a credit to revenue (income statement).
- When the invoice is later issued, the unbilled revenue reclassifies to accounts receivable.
- Cash-basis books don't track unbilled revenue and routinely understate revenue earned in the period.
What Unbilled Revenue Is
Under ASC 606, revenue is recognized when performance obligations are satisfied — when control of the goods or services transfers to the customer. The timing of invoicing is a separate question. When delivery happens before invoicing, the gap between them is unbilled revenue.
Unbilled revenue (also called accrued revenue or contract assets under ASC 606) is revenue earned through performance but not yet invoiced. It is recorded as a balance sheet asset and recognized in the income statement.
When Unbilled Revenue Occurs
Three patterns produce unbilled revenue:
- Time-and-materials professional services billed in arrears. A consultant logs 80 hours in March, invoiced April 1. The 80 hours' worth of revenue belongs in March; the invoice issuance happens in April. The March 31 balance is unbilled revenue.
- Milestone-based contracts where work outpaces billing. A construction or implementation contract bills at completion of milestones. If period-end falls between milestones with substantial work performed, the earned-but-unbilled portion is recognized as revenue.
- Percentage-of-completion accounting. Long-term contracts (typically construction or large services engagements) recognize revenue as work progresses. Cumulative revenue recognized minus cumulative billings produces an unbilled revenue balance.
Unbilled Revenue vs. Accounts Receivable
Both are balance sheet assets reflecting amounts the customer owes. The difference is invoice status:
| Unbilled revenue | Accounts receivable | |
|---|---|---|
| Invoice issued? | No | Yes |
| Source of value | Performance delivered | Invoice issued + delivery |
| Customer aware of obligation? | Sometimes (usage logs, milestone reports) | Always (received invoice) |
| Aging tracked? | Internally, by contract | By invoice date |
| Becomes AR when? | Invoice issued | Already is |
The clean rule: unbilled revenue becomes accounts receivable the moment the invoice is issued. They are sequential, not parallel.
Journal Entries
Scenario: A consulting firm performs $35,000 of services in March, billed on April 1.
March 31 — Recognize earned but unbilled revenue
| Date | Account | Debit | Credit |
|---|---|---|---|
| 3/31 | Unbilled Revenue (asset) | $35,000 | |
| Service Revenue | $35,000 | ||
| Recognize March revenue for work performed but not yet invoiced. | |||
April 1 — Invoice issued; reclassify to AR
| Date | Account | Debit | Credit |
|---|---|---|---|
| 4/1 | Accounts Receivable | $35,000 | |
| Unbilled Revenue | $35,000 | ||
| Invoice issued. Asset reclassifies; revenue not affected (already recognized). | |||
April (when paid) — Cash collection
| Date | Account | Debit | Credit |
|---|---|---|---|
| 4/30 (e.g.) | Cash | $35,000 | |
| Accounts Receivable | $35,000 |
ASC 606 Implications
Under ASC 606, the term "contract asset" is preferred over "unbilled revenue" in formal financial statements. The two are functionally similar but the standard distinguishes:
- Contract asset: Right to consideration that is conditional on something other than passage of time (e.g., another performance obligation must be satisfied first).
- Receivable: Right to consideration that is unconditional except for the passage of time (i.e., an invoice has been issued, payment is just expected).
Most balance sheets present "Contract Assets" as a separate line under current assets, alongside accounts receivable, with detail in the revenue footnote.
Common Mistakes
Waiting until the invoice is issued to recognize revenue
Common in services firms. The earned revenue belongs in the period the work was performed — not the period the invoice was sent.
Confusing unbilled revenue with accounts receivable on the balance sheet
They sit in different accounts, age differently, and have different aging risk. Combining them masks contract performance issues.
Forgetting to reclassify when invoices issue
The unbilled revenue balance should drop to zero when the invoice is sent and AR increase by the same amount. Manual processes often leave both balances inflated.
Skipping unbilled revenue on cash-basis books
Cash basis ignores unbilled revenue entirely, which understates revenue in the period work is performed. This is one of the largest discoveries during cash-to-accrual conversion.
Booking unbilled revenue without contract evidence
Auditors require evidence that the work was actually performed and the customer is obligated to pay. Time-tracking logs, milestone certifications, or signed work orders.
FAQ
Is unbilled revenue an asset or revenue?
Both — and that's the point. Recognizing it creates a debit to an asset account (Unbilled Revenue or Contract Asset) and a credit to revenue. The income statement reflects the earnings; the balance sheet reflects the right to collect.
What's the difference between unbilled revenue and deferred revenue?
Opposites. Unbilled revenue: work performed, no invoice or cash yet. Deferred revenue: cash collected, work not yet performed.
Is unbilled revenue the same as accrued revenue?
Yes — used interchangeably. ASC 606 introduced the term "contract asset" which is now the preferred terminology in formal financial statements.
How do I record unbilled revenue in QuickBooks Online?
Set up an "Other Current Asset" account called Unbilled Revenue. Post month-end accruals via journal entry. When the invoice issues, reclassify by debiting AR and crediting Unbilled Revenue.
How does ASC 606 treat unbilled revenue?
ASC 606 distinguishes between contract assets (conditional on more than time) and receivables (just awaiting time/payment). The accounting is similar; the disclosure is more granular.
Where to Go Next
Related Resources
Sources & References
- FASB, ASC 606: Revenue from Contracts with Customers — Contract Assets and Liabilities.
- AICPA, Audit and Accounting Guides — Revenue Recognition.
- FinOptimal Managed Accounting practice — services and milestone billing case data, 2024–2026.
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