Reconciliation for Timing Differences

If you do not recognize revenue and generate invoices at the same time, the timing difference creates a variance in accrued accounts receivable.

For example, suppose that you plan to create an invoice for a project only after the customer approves and accepts the completed project. The project takes three months to complete, and you recognize revenue for the project each month. Because of the difference between when you recognize revenue (each month) and generate invoices (after completion) for the project, an unreconciled balance exists in accrued accounts receivable.

Three months later, when you bill for the project:

• Trade accounts receivable and total revenue amounts for the project are the same.

• The net variance in accrued (unbilled) accounts receivable is zero.

In the case of a timing difference, over time, all variances are reconciled and equal zero for accrued accounts receivable.