Accrued Income: Definition, Accounting Treatment

What is Accrued Income?

Accrued Income means the income which is earned during the current accounting year and has become due but not received by the end of the current accounting period. Examples of Accrued Income are : Income from Investments earned (matured) but not received, Dividend on Shares declared but not received yet.

Adjustment Entry of Accrued Income

The adjustment entry for accrued income are as follows:

# When the Income is Earned but not received:

Accrued Income A/cDebitIncreases the Asset
Income A/cCreditIncreases the Income
(Being the accrued income are accounted for)

# When the money (income) is received:

Cash A/cDebit
Accrued Income A/cCredit
Being the accrued amount is received

Accrued income also treated as Income Receivable, Outstanding income and income earned but not received.

Since accrual base accounting are advised to follow, income must be recognized during the period in which it is earned irrespective of when the money is received.

Example of Accrued Income

Example # 01:

XYZ Ltd rented a house to ABC Ltd. @ $ 6,000 per month. On 31st December’2018 the XYZ Ltd. showed that total outstanding rent is $ 12,000 which is received on 15th January ‘2019.

What will be the related Journal Entries in this respect.

Answer:

# When the Income is Accounted for:

31st December’2018Accrued Income A/cDebit$12,000
Income A/cCredit$12,000
(Accrued income is accounted for)

# When the Income is Received:

15th January-2019Cash A/cDebit$12,000
Accrued Income A/cCredit$12,000

Example # 2:

IHL Limited receives $ 2,000 as Interest income against its Fixed Deposit on 10th January 2019. FDR statement shows that this income is accrued for the month of December-2018. How IHL Limited pass journal entries for this Income?

Solution:

On 31st December, the business will pass the following Journal Entry:

ParticularsDebitCredit
Interest Receivable A/c$ 2,000
Interest Income A/c$2,000

On 10th January, the business will pass the following entry:

ParticularsDebitCredit
Bank/Cash A/c$ 2,000
Interest Income A/c$ 2,000

Treatment in Financial Statement

  • Interest Earned but not received to be credited to Profit and Loss Account to increase the amount of income of the current year under the head other income, or under Interest Income.
  • Accrued Interest Receivable are the assets of the company and shown under the head of Current Account.

Presentation on Financial Statement


Format : WallStreetMojo
Format : WallStreetMojo