What is Accrued Income?
Accrued Income is the income which the company has earned in the ordinary course of business after selling the good or after the provision of the services to the third party but the payment for which has been not been received and is shown as an asset in the balance sheet of the company.
Accrued Income is the income which is earned by the company or an individual during the accounting year but not received in that same accounting period.
It can be any income for which the company gave goods and services to the customer, but customer payment is pending. Sometimes this income can also be applied to revenueRevenueRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more generated for which bill is not issued by the entity yet. Also, it has not been paid yet.
We see from the practical example of Accrued income treatment in the FIFA Financial Report 2010. We note that this income for FIFA in 2010 and 2009 was TUSD 10,368 and TUSD 47,009, respectively.
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For eg:
Source: Accrued Income (wallstreetmojo.com)
Accrued Income Examples
There are different types of ways through which it can take place in any business:
#1 – Investment
Accrued income can be the earning generated from an investment but yet to receive.
For example, XYZ company invested in $500,000 in bonds on 1 march in a 4% $500,000 bond that pays interest $10,000 on 30th September and 31st March each. Now, XYZ invested the amount on 1st March, but as it was the first month, so the company didn’t receive an interest income of $1,667(i.e., $10,000/6) on a 31st March in the same year. So till 30th September, the amount of $ 1,667.00 is the accrued earnings for the company as the company knows that interest for March has been generated, but it will receive on 30th September.
#2 – Rent Income
Rent income can be considered as accrued income when the payment policies are different.
For example, a real estate company gives a building on rent and decides to take the rent from a renter quarterly, not monthly. Here, the treatment of rental income will be as accrued earnings. It is so since rent of two months has been generated, but the company will receive that rent at the end of the 3rd month of the same quarter.
#3 – Income from services
Suppose a service provider company provided its services to the customer and customer promise to pay after some time. The payment regarding those services will be treated as accrued income.
Accrued Income Journal Entries
It is current assets for any business and has an impact on a Balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read more and Profit & Loss A/c. For this, an accountant needs to pass the journal entry that debitsDebitsDebit is an entry in the books of accounts, which either increases the assets or decreases the liabilities. According to the double-entry system, the total debits should always be equal to the total credits.read more accrued Income A/c and credit Income A/c.
Journal Entry In the income account
It needs to be added to the concerned income in profit and loss account:
Journal Entry in Balances sheet
In the Balance sheet, it is shown as a separate item under the current asset on the asset sideCurrent Asset On The Asset SideCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more.
Accrued Income Journal Entry Examples
Example #1
Suppose ABC Ltd earned an interest incomeInterest IncomeInterest Income is the amount of revenue generated by interest-yielding investments like certificates of deposit, savings accounts, or other investments & it is reported in the Company’s income statement. read more on the investment of $30,000 in which only $25,000 is received, and $5,000 is still needed to be receiving. Below are the accounts in which this impact of accrued earning can be shown:
For Accrued Interest
For Interest Received
For-Profit & Loss Account
For Balance Sheet
Example #2
Here are some more examples for journal entries:
Abhay Mittal ltd. gives some space of the building on rent and renter agreed to pay the rent monthly. In June, the renter didn’t pay the rent and ask the landlord to pay next month. So, for this scenario, adjustment entry should be:
Example #3
Jagriti Pvt Ltd lent $10,000 at 10% interest on March 1, 2015. The amount needs to be collected after 1 year. At the end of March, no entry was entered in the journal regarding interest income.
Interest is earned over time. In the case above, the $10,000 principal plus a $1,000 interest will be collected by the company after 1 year. The $1,000 interest pertains to 1 year.
However, 1 month has already passed. The company is already entitled to 1/03 of the interest, as prorated. Therefore the adjusting entry would be to recognize $83.33 (i.e., $1,000 x 1/12 ) as interest income.
So in this scenario, the necessary adjustment entry should be:
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This article has been a guide to What is Accrued Income, and it’s meaning. Here we discuss Accrued Income Journal Entries along with practical examples (investment, rent & other sources). You may also go through our other suggested accounting articles –
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