Project Portfolio Management Certification (PfMP) Practice Exam 2025 – All-in-One Guide to Exam Success!

When revenue is recognized before billing, the appropriate accounting entry involves acknowledging that revenue has been earned even though payment has not yet been received or billed to the customer. This scenario typically occurs in service industries or contractual agreements where services are rendered before an invoice is created.

In this case, the entry "Debit: Unbilled Receivables, Credit: Revenue" accurately reflects the situation. The debit to Unbilled Receivables indicates that the company has a receivable amount that is expected to be collected in the future, but it hasn't yet been invoiced. This account essentially records amounts that will likely become accounts receivable once the billing occurs. The credit to Revenue signifies that the revenue has been recognized in the financial statements, reflecting that the company has fulfilled its obligation in providing a service or product, hence earning the revenue.

This type of entry ensures proper revenue recognition according to the accrual basis of accounting, aligning with the principles that revenue should be recognized when earned, rather than when cash is received. This is crucial for accurate financial reporting and performance evaluation.