Unbilled Revenue Journal Entry with Accounting Example

Unbilled revenue is income that a business has earned but has not yet invoiced to the customer. Recording it through an unbilled revenue journal entry ensures revenue is recognised in the correct accounting period, helping businesses present accurate financial statements and comply with accrual accounting principles.

Unbilled revenue commonly arises when services have been provided, project milestones have been completed or contractual obligations have been fulfilled before an invoice is raised. If it is not recorded, revenue for the period may be understated, resulting in an incomplete view of business performance.

What is unbilled revenue?

Unbilled revenue is income that a business has earned by delivering goods or services but has not yet invoiced to the customer.

Under the accrual basis of accounting, revenue is recognised when it is earned, not when payment is received or an invoice is raised. Therefore, businesses may need to record revenue before generating an invoice.

Unbilled revenue is common in:

• Consulting assignments
• Construction projects
• Professional services
• Annual maintenance contracts
• Subscription-based services
• Software implementation projects

For example, if a consulting firm completes work worth ₹1 lakh in March and raises the invoice in April, the revenue is recognised in March because it was earned during that period.

Unbilled revenue vs contract asset

Unbilled revenue refers to income earned but not yet invoiced. Under Ind AS 115 and IFRS 15, such amounts may be classified as a contract asset if the business's right to payment remains conditional on meeting additional contractual requirements.

Once the right to payment becomes unconditional, the amount is generally reclassified as accounts receivable.

Why is unbilled revenue recorded?

Unbilled revenue is recorded to recognise income in the period in which it is earned, in accordance with the matching principle and accrual basis of accounting.

If revenue is recorded only after invoicing, a timing difference can arise between the work performed and the revenue reported. This may distort profitability for a month, quarter or financial year.

Recording unbilled revenue helps businesses:

• Present accurate financial statements
• Match revenue with the period in which it was earned
• Improve profit measurement
• Avoid understating assets and income
• Support proper financial reporting

Businesses that work on long-duration contracts or milestone-based projects often record unbilled revenue at the end of an accounting period.

How does unbilled revenue appear in financial statements?

Unbilled revenue appears as an asset in the balance sheet and as income in the profit and loss account.

It is generally classified as a current asset because the business expects to raise an invoice and collect payment within the normal operating cycle. In certain long-term contracts where collection is expected beyond 12 months, it may be classified as a non-current asset.

Until the invoice is raised, unbilled revenue remains recorded as an asset in the balance sheet. The corresponding revenue is recognised in the profit and loss account because the income has already been earned.

The treatment can be summarised as follows:

This treatment makes sure that both revenue and receivables are presented correctly.

Unbilled revenue journal entry

When revenue is earned but the invoice has not yet been raised, the following journal entry is recorded:

Revenue has been earned, but the invoice has not yet been raised.

The debit creates an asset because the business has a valid claim against the customer now. The credit records the revenue earned during that period.

Once the invoice gets generated, a second entry is needed.

An invoice has been raised against previously recognised unbilled revenue.

This entry transfers the amount from unbilled revenue to accounts receivable.

Unbilled revenue journal entry with accounting example

Let’s try to understand this concept through one practical example.

ABC Consulting Services completed one project milestone for the client on 28 March 2026. The value of completed work is ₹1,00,000.

The company is planning to issue an invoice on 10 April 2026.

Since the service was completed in March, the company must recognise revenue in March itself.

Entry on 31 March 2026

Consulting services have been rendered, but the invoice has not yet been issued.

As a result:

• Revenue increases by ₹1,00,000
• Current assets increase by ₹1,00,000
• The March financial statements reflect the income earned during the period

Entry on 10 April 2026

Being invoice raised against previously recognised revenue.

After this entry:

• Unbilled revenue becomes zero.
• Accounts receivable increases by ₹1,00,000
• No additional revenue gets recognised because it was already recorded in March.

Entry when payment is received

Suppose the client pays on 25 April 2026.

Being payment received from the customer. This completes the accounting cycle for this transaction.

What are the common mistakes while recording unbilled revenue?

Businesses often make mistakes while accounting for unbilled revenue, especially at the month-end and year-end closing.

Common mistakes while recording unbilled revenue include:

• Recognising revenue before performance obligations are completed
• Failing to reverse or transfer unbilled revenue after invoicing
• Recording the same revenue twice
• Estimating revenue without adequate supporting documentation
• Ignoring project completion status
• Not reviewing unbilled balances regularly
• Failing to distinguish between contract assets and accounts receivable
• Recognising revenue without meeting the requirements of Ind AS 115 or IFRS 15

These errors can result in inaccurate revenue reporting, misstated financial statements and audit observations.

How to manage unbilled revenue effectively?

Accurate tracking becomes increasingly important as transaction volumes grow. Businesses can manage unbilled revenue effectively by:

• Reviewing pending projects at the end of each accounting period
• Matching completed work with invoices issued
• Maintaining supporting documentation for revenue recognition
• Monitoring the ageing of unbilled balances
• Performing regular reconciliations between project records and accounting books
• Reviewing contract asset balances separately, where applicable

A structured review process helps prevent revenue leakage, reporting errors and unreconciled balances.

Conclusion

Accurate management of unbilled revenue ensures that businesses recognise income in the correct accounting period and maintain reliable financial statements. Regular tracking of completed work, pending invoices and revenue entries helps prevent reporting errors and improves financial visibility.

As transaction volumes increase, businesses need organised systems to manage revenue records, receivables and accounting adjustments. TallyPrime helps businesses maintain accurate financial records, efficiently track transactions and support better accounting decisions.