What Is Accrued Revenue?

Accrued revenue is revenue that has been earned by providing a good or service, but for which no cash has been received. Accrued revenues are recorded as receivables on the balance sheet to reflect the amount of money that customers owe the business for the goods or services they purchased.

Accrued revenue may be contrasted with realized or recognized revenue, and compared with accrued expenses.

Understanding Accrued Revenue

Accrued revenue is the product of accrual accounting and the revenue recognition and matching principles. The revenue recognition principle requires that revenue transactions be recorded in the same accounting period in which they are earned, rather than when the cash payment for the product or service is received. The matching principle is an accounting concept that seeks to tie revenue generated in an accounting period to the expenses incurred to generate that revenue. Under generally accepted accounting principles (GAAP), accrued revenue is recognized when the performing party satisfies a performance obligation. For example, revenue is recognized when a sales transaction is made and the customer takes possession of a good, regardless of whether the customer paid cash or credit at that time.

Accrued revenue often appears in the financial statements of businesses in the service industry, because revenue recognition would otherwise be delayed until the work or service was finished, which might last several months—in contrast to manufacturing, where invoices are issued as soon as products are shipped. Without using accrued revenue, revenues and profit would be reported in a lumpy fashion, giving a murky and not useful impression of the business’s true value.

For example, a construction company will work on one project for many months. It needs to recognize a portion of the revenue for the contract in each month as services are rendered, rather than waiting until the end of the contract to recognize the full revenue.

Recording Accrued Revenue

Accrued revenue is recorded in the financial statements by way of an adjusting journal entry. The accountant debits an asset account for accrued revenue which is reversed with the amount of revenue collected, crediting accrued revenue.

Accrued revenue covers items that would not otherwise appear in the general ledger at the end of the period. When one company records accrued revenues, the other company will record the transaction as an accrued expense, which is a liability on the balance sheet.

When accrued revenue is first recorded, the amount is recognized on the income statement through a credit to revenue. An associated accrued revenue account on the company’s balance sheet is debited by the same amount in the form of accounts receivable.

When a customer makes a payment for the goods or services received, the accountant makes a journal entry for the amount of cash received by debiting the cash account on the balance sheet, and then crediting the same amount to the accrued revenue account or accounts receivable account.

Examples of Accrued Revenue

Accrued revenue is often recorded by companies engaged in long-term projects like construction or large engineering projects. Similar to the example of the construction company above, companies in the aerospace and defense sectors might accrue revenue as each piece of military hardware is delivered, even if they only bill the U.S. government once a year.

Landlords may book accrued revenue if they record a tenant’s rent payment at the first of the month but receive the rent at the end of the month.

What Is an Accredited Asset Management Specialist (AAMS)?

The Accredited Asset Management Specialist (AAMS) is a professional designation awarded by the College for Financial Planning to financial professionals who complete a self-study program, pass an exam, and agree to comply with a code of ethics.

Successful applicants earn the right to use the AAMS designation with their names for two years, which can improve job opportunities, professional reputation, and pay.

Understanding the AAMS Designation

The AAMS program began in 1994 and is taught exclusively online using the CFP’s platform. The College for Financial Planning (owned by Kaplan) is a financial education provider for working adults in the financial services industry.

The AAMS program consists of 10 modules, starting with a review of the asset management process, and then covers a broad range of topics, such as investments, insurance, taxation, retirement, and estate planning issues.

To keep the privileges associated with the designation, AAMS professionals must complete 16 hours of continuing education every two years and pay a fee. The AAMS continuing education program is developed alongside some of the nation’s top investment firms. Applicants explore case studies based on real-life scenarios designed to prepare them for effectiveness in the real world and help them build lasting relationships with clients.

What Does an AAMS Do?

The AAMS certification is designed to equip new advisors with the information they need to help clients plan for and accomplish their personal financial goals. The specialists help people plan college savings, taxes, and retirement savings.

An AAMS focuses on personal finances, over and above checking and savings account management—asset management, investments, and much more.

How to Attain AAMS Certification

The AAMS certification is granted by the College of Financial Planning, the college that created the Certified Financial Planner certification.

To achieve certification, you’ll need to enroll at the College of Financial Planning. This process is not similar to traditionally enrolling in a college. You select the program from the college’s website, choose your options, and pay for the materials. You’re given an opportunity to choose printed study materials when you’re checking out.

Once you receive your materials, you have 120 days from the day you’re granted access to the online material to complete testing and pass the final exam. You follow the course online—using prerecorded videos, self-study, and printed study materials if you buy them.

The final exam for the AAMS program contains 80 questions. A passing score on the AAMS final examination is 70% or better. The time limit for the final exam is three hours, and you’re allowed two attempts to pass.

The self-study program covers several topics:

• The asset management process
• Investment strategies
• Policy and change
• Risk, return, and investment performance
• Asset allocation and selection
• Taxation of investment products
• Investment opportunities for individual retirement
• Investment considerations for small business owners
• Executive compensation and benefit plans
• Insurance products for investment clients
• Estate planning
• Regulatory and ethical issues.

Once you receive your AAMS certification, you must complete 16 hours of continuing education credits per year and pay a renewal fee of $95 once every two years to maintain your certification.

AAMS vs. CFP

AAMS certification focuses on personal finance, asset management, and investments. It is intended for newer financial planners or planners transitioning from other financial work.

Certified Financial Planners (CFP) are finance professionals certified by the College of Financial Planning to help people plan and achieve their financial goals. A CFP can assist someone throughout their lifetime, helping them adjust their finances to meet changing life events and updated financial goals.

The CFP certification is the highest accreditation available for financial planners, requiring 6,000 hours of professional planning experience within the ten years preceding the certification exam.

Special Considerations

The Financial Industry Regulatory Authority (FINRA) specifies that it does not approve or endorse any professional credential or designation. Still, it does list the AAMS as one of the available designations in the financial services industry. According to the College for Financial Planning (CFP), some organizations recognize the AAMS designation as representing 28 hours of continuing education credit.

The CFP maintains an accessible database of the names of all certificate holders and their status. When AAMS students pass their final exam, they receive credit for completing module FP511 from the CFP course.

The Bottom Line

An AAMS is a financial advisor certified by the College of Financial Planning to advise clients about personal finances, asset management, and investments. It is a challenging course of study for those unfamiliar with investing and assets, but it is also a stepping stone for achieving the highly coveted Certified Financial Planner designation.

What Does Accredited in Business Valuation Mean?

Accredited in Business Valuation (ABV) is a professional designation awarded to a certified public accountant (CPA), who specializes in calculating businesses’ value. The ABV certification is overseen by the American Institute of Certified Public Accountants (AICPA). It requires candidates to complete an application process, pass an exam, meet the minimum business experience and education requirements, and pay a credential fee. As of 2021, the annual fee for the ABV Credential was $380.

Maintaining the ABV credential also requires those who hold the certification to meet minimum work experience standards and lifelong learning. Successful applicants earn the right to use the ABV designation with their names, improving job opportunities, professional reputation, and pay.

How Accredited in Business Valuation Works

The Accredited in Business Valuation credential is awarded to CPAs who demonstrate considerable knowledge, skill, and business valuation experience. The study program to become an ABV covers the basic business valuation process, professional standards, qualitative and quantitative analysis, valuation analysis, and other related topics, such as financial reporting and litigation.

Accredited in Business Valuation Requirements

Candidates seeking ABV accreditation must have a valid (and unrevoked) CPA license or certificate issued by the appropriate state authority. They must also pass the ABV Examination, with some exceptions. For example, this requirement is waived in the case of AM (Accredited Member of the ASA) and ASA (Accredited Senior Appraiser) credential holders of the American Society of Appraisers, CFA (Certified Financial Actuary) holders, and CBV (Chartered Business Valuator) credential holders of the Canadian Institute of Chartered Business Valuators.

Every three years, ABV professionals must complete 60 hours of continuing professional education. They must also pay an annual fee of several hundred dollars.

Business Experience and Education Requirements For Candidates

Business Experience

ABV candidates must have obtained a minimum of 150 hours of BV experience within the five years preceding the credential application date. Candidates may also apply a maximum of 15 experience hours by completing the hands-on business valuation case study track at the AICPA Forensic and Valuation Services Conference.

Education Requirement

ABV candidates must complete 75 hours of valuation-related continuing professional development (CPD). All hours must be obtained within the 5-year period preceding the date of the ABV application.

Accredited In Business Valuation Exam

The ABV Exam is conducted by computer and consists of two parts. Both parts must be passed in 12 months (based on passing the first part) to receive ABV credit.

Applicants are given three hours and 15-minutes to complete each section of the test, including a 15-minute break. The exam consists of 90 multiple-choice questions per module, and much of the exam are discrete multiple-choice questions (78 in total). A dozen questions are case studies with accompanying multiple-choice answers. These questions are meant to test a candidate’s analytical aptitude and apply valuation theory and methodology.

What Is Actuarial Science?

Actuarial science is a discipline that assesses financial risks in the insurance and finance fields, using mathematical and statistical methods. Actuarial science applies the mathematics of probability and statistics to define, analyze, and solve the financial implications of uncertain future events. Traditional actuarial science largely revolves around the analysis of mortality and the production of life tables, and the application of compound interest.

Understanding Actuarial Science

Actuarial science attempts to quantify the risk of an event occurring using probability analysis so that its financial impact can be determined. Actuarial science is typically used in the insurance industry by actuaries. Actuaries analyze mathematical models to predict or forecast the reasonableness of an event occurring so that an insurance company can allocate funds to pay out any claims that might result from the event. For example, studying mortality rates of individuals of a certain age would help insurance companies understand the likelihood or timeframe of paying out a life insurance policy.

Actuarial science became a formal mathematical discipline in the late 17th century with the increased demand for long-term insurance coverage. Actuarial science spans several interrelated subjects, including mathematics, probability theory, statistics, finance, economics, and computer science. Historically, actuarial science used deterministic models in the construction of tables and premiums. In the last 30 years, science has undergone revolutionary changes due to the proliferation of high-speed computers and the union of stochastic actuarial models with modern financial theory.

Applications of Actuarial Science

Life insurance and pension plans are the two main applications of actuarial science. However, actuarial science is also applied in the study of financial organizations to analyze their liabilities and improve financial decision-making. Actuaries employ this specialty science to evaluate the financial, economic, and other business applications of future events.

Insurance

In traditional life insurance, actuarial science focuses on the analysis of mortality, the production of life tables, and the application of compound interest, which is the accumulated interest from previous periods plus the interest on the principal investment. As a result, actuarial science can help develop policies for financial products such as annuities, which are investments that pay a fixed income stream. Actuarial science is also used to determine the various financial outcomes for investable assets held by non-profit corporations as a result of endowments. 

In health insurance, including employer-provided plans and social insurance, actuarial science includes analyzing rates of

• Disability in the population or the risk of a certain group of people becoming disabled
• Morbidity or the frequency and the extent to which a disease occurs in a population
• Mortality or mortality rate, which measures the number of deaths in a population that result from a specific disease or event
• Fertility or fertility rate, which measures the number of children born

For example, disability rates are determined for veterans that may have been wounded in the line of duty. Certain percentages are assigned to the extent of the disability to determine the payout from disability insurance.

Actuarial science is also applied to property, casualty, liability, and general insurance–instances in which coverage is generally provided on a renewable period, (such as yearly). Coverage can be canceled at the end of the period by either party.

Pensions

In the pension industry, actuarial science compares the costs of alternative strategies with regard to the design, funding, accounting, administration, and maintenance or redesign of pension plans. A pension plan is a defined-benefit plan, which is a type of retirement plan involving contributions from the employer to be set aside and paid out to the employees upon retirement.

Short-term and long-term bond rates greatly influence pension plans and their investment strategies. Bonds are debt instruments issued by governments and corporations that typically pay a periodic interest rate. For example, in a low-interest-rate environment, a pension plan might have difficulty earning income from the bonds that it has invested in, which increases the probability that the pension plan could run out of money.

Other factors impacting a pension plan’s viability include benefit arrangements, collective bargaining, the employer’s competitors, and changing demographics of the workforce. Tax laws and the policies of the Internal Revenue Service (IRS) regarding the calculation of pension surpluses also impact the finances of a pension plan. Additionally, economic conditions and trends in the financial markets can impact the probability of a pension plan remaining funded.

Universities and Professional Certifications

According to the Bureau of Labor Statistics, the number of actuaries employed is expected to grow 21% from 2021 to 2031. For this reason, many universities offer educational degrees and courses on actuarial science. In addition, there are professional designations for those interested in pursuing the field.

Universities

The Society of Actuaries identifies and reports colleges that meet one of three levels of recognition:

• UCAP-Introduction Curriculum: Universities that maintain course requirements for two professional actuarial exams in addition to having met other approved course requirements.
• UCAP-Advanced Curriculum: Universities that maintain course requirements for four professional exams in addition to having met other approved course requirements.
• Center of Actuarial Excellence: Universities that maintain eight specific requirements in connection with a variety of matters. This is the highest tier of competency identified by the SOA for a university.

As of December 2022, there are roughly 25 Center of Actuarial Excellence schools across the United States, Canda, Australia, Singapore, the United Kingdom, and China. Within the U.S., these schools include but are not limited to Brigham Young, Georgia State, Purdue, Connecticut, and Michigan.

Professional Designations and Credentials

There are a number of different professional designations an actuary can pursue to further gain credibility and proficiency in their field. The Casualty Actuarial Society offers the Associate (ACAS) and Fellow (FCAS) membership levels, each of the two with escalating requirements. For example, the ACAS credential can be achieved after passing six exams, while the FCAS is earned after nine exams. Areas of focus for the FCAS exam include:

• Probability
• Financial Mathematics
• Financial Economics
• Modern Actuarial Statistics
• Basic Techniques for Ratemaking and Estimating Claim Liabilities
• Regulation & Financial Reporting
• Policy Liabilities, Insurance Company Valuation, and Enterprise Risk Management
• Advanced Ratemaking

The Society of Actuaries promotes several different actuarial exams to demonstrate competency in the field.

• An Associate of the Society of Actuaries (ASA) demonstrates knowledge of fundamental concepts of modeling and managing risk. The examination requirements are changing as of Spring 2023, and the list of required examinations includes topics on predictive analysis, economics, probabilities, and financial markets.
• A Chartered Enterprise Risk Analyst (CERA) specializes in having knowledge in identifying, measuring, and managing risk in risk-bearing enterprises. Similar to the ASA requirements, the CERA requirements include a professional course covering code of conduct.
• A Fellow of the Society of Actuaries (FSA) demonstrates knowledge of financial decisions involving pensions, life insurance, health insurance, and investments. FSAs also must demonstrate in-depth knowledge and the application of appropriate techniques to these various areas.

The Bottom Line

Actuarial science is the study of mathematically predicting the probability of something happening in the future and assigning that outcome a financial value. Companies, pension funds, and insurance agencies rely on actuaries to develop models to assess areas of risk and devise policies to mitigate potential future challenges.