Accounting Treatment of Accrued Income.

What is Accrued Income?

Accrued Income is the income which is earned during the current accounting year and has become due to receive but not received by the end of the current accounting period. Example of such income are Dividend, Interest earned, Commission due etc.

The Adjustment entry of accrued income are as follows:

Accrued Income A/cDebit
To, Income A/cCredit

(Being the adjustment entry made for accrued income)

Treatment in Financial Statement

The accounting Treatment of Accrued Income in the final account are as follows:

  • Treatment in Income Statement:

The accrued income is added to the relevant head of income on the credit side of the income statement to increase the amount of income for the current year.

  • Treatment in Balance Sheet:

Accrued income is the assets of the company and shown on the assets side of the Balance Sheet because this is a debt due from a party of the business.

Example of Accrued Income

  1. XYZ Ltd. closes it accounting year on 31st December. On 31st December’2018, the company calculated its due rent receivable from its 5 Tenant who still didn’t their monthly rent. Rent per month was @ $ 1,500 and total accrued rent computed as (1,500 * 5) = $ 7,500. However, the tenants paid the rent on 17th January’2019. Give necessary journal entry for this transaction.

On 31st December’2018: Rent earned but not received

Accrued Rent A/cDebit
To, Rent A/cCredit

On 17th January’2019: the Rent is Received

Cash/Bank A/c7,500
To, Accrued Rent7,500

Other Accrued Income for Example:

Accrued Commission, Interest earned etc. are the another example of Accrued Income. The Journal entries are shown on the table:

For Accrued Commission:

When the Commission is earned but not receivedAccrued Commission A/c
To, Commission A/c
When the Commission is receivedCash A/c
To, Accrued Commission A/c

For Accrued Bank Interest:

When Interest is Earned but not receivedAccrued Interest A/cDebit
To, Interest Received A/cCredit
When Interest is ReceivedCash A/cDebit
to, Accrued Interest A/cCredit

Key Features of Accrued Income

  • Accrued Income is the Current Assets of the company
  • It is necessary to record the whole amount the company earned (Cash received so far + Yet to be received)
  • Accrued income sometimes called as outstanding income
  • Accrued income to be shown with the related heads of income.