In accounting, “booked revenue” typically refers to money received, or money a company has already earned and expects to receive. Companies typically use either the cash method or accrual method to enter revenue receipts. The time in which revenue is booked depends on the type of method used. “Not booked revenue”, typically called deferred or unearned revenue, can include monetary receipts, or partial receipts, not yet earned or counted as income.
Cash Method Accounting
In the cash method of accounting, a company only records revenue when cash is received for a product or service. The cash method of recording revenue can be applied to all types of revenue receipts, including cash, credit card payments and checks. Under the cash method of accounting, a company may choose to book revenue only after money has cleared financial hurdles. For example, a company may choose to book credit card revenue only after funds have been deposited into its bank account. Similarly, a company may only book revenue received in check form after it has cleared the banking system. Small businesses often use the cash method of accounting for booking revenue.
Accrual Method Accounting
The accrual method of accounting enables businesses to book received revenue and money it has earned but not yet received. For example, under the accrual method of accounting, a construction company can book revenue when it completes a project, but before it receives payment for the job. Other types of accrual method transactions can include booking revenue when a customer places an order, but before receiving payment, or when a product is delivered to a customer, but before receiving payment. Incorporated businesses often use the accrual method of accounting.
Deferred revenue, also referred to as unearned revenue, can refer to funds received by a company, but not yet earned or counted as income. Service-related businesses often use deferred revenue entries in their accounting systems. For example, if an air conditioning service company requires an up-front payment for a service contract, but has not yet provided a service, the funds received are considered deferred revenue. Once the company performs the service, the funds are reentered into the accounting system as booked revenue. Deferred revenue is considered a liability entry until the money is earned and booked as income.
Companies use cash and accrual methods of accounting to record both revenue and expenses and the method used can impact tax liability. Using a cash method, a company only reports earnings and expenses that have already been realized. In the case of a small business, the cash method can reduce its tax liability because it does not report earnings it has not received. The accrual accounting method can include money booked but not yet received and expenses not yet paid. This can increase tax liability for a company if it has a high level of booked revenue and a low level of booked expenses.
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