Accrued Income (Meaning, Example)

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 yet received in the same accounting period

It can be any income for which goods and services are already provided to the customer but payment has not been made yet. Sometimes this income can also be applied to revenue generated for which the bill is not issued by the entity yet and 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.

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 30^th September and 31^st March each. Now, XYZ invested the amount on 1^st 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 31^st March in the same year. So till 30^th September the amount of $ 1,667.00 is the accrued earnings for the company as the company knows that interest for the month of March has been generated but it will receive on 30^th September.

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#2 – Rent Income

Rent income can be considered as accrued income when the payment policies are different.

For example, a real estate company gives the building on rent and decided to take the rent from a renter on a quarterly basis, not on a monthly basis. Then rent income will be treated as the accrued earnings as the rent of two months has been generated but the company will receive that rent at the end of the 3^rd month of the same quarter.

#3 – Income from services

Suppose a service provider company provided their services to the customer and customer promise to pay after some time then 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 sheet and Profit & Loss A/c. For this, an accountant needs to pass the journal entry that debits 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 side.

Accrued Income Journal Entry Examples

Example #1

Suppose ABC Ltd earned an interest income 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 on a monthly basis. In the month of June 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 through the passage of 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: