Understanding Accrued Income: Definition, Journal Entries and Examples

What is Accrued Income?

Accrued income is essentially the income that has been earned but has not been received yet. In simpler terms, accrued income is the income that's earned but not yet collected by the business.

This concept is a fundamental part of accrual accounting where revenue earned within a specific accounting period should be recognized within that same period, regardless of when the actual payment is received.

Accrual accounting is primarily used by businesses that sell goods and services on credit, as an alternative to the cash accounting system.

Journal Entries for Accrued Income

Accrued income is related to the current accounting period and hence, it is recognized as the income of the current year.

The following journal entries can be made for accrued income:

Debit: Accrued Income A/c

Credit: Income A/c

(To record the accrued income)

The Accrued income A/c appears on the asset side of the balance sheet. While preparing the Trading and Profit and Loss account, this accrued income is added to the corresponding income.

Examples of Accrued Income

To better understand the concept of accrued income, let's consider the following scenario.

Assume that a company XYZ provides internet services to a housing society and charges each house $200 every quarter. Even though the company doesn't receive any payment for three months, it still records a $66.67 debit to accumulated profit and a $66.67 revenue credit each month.

When the payment of $200 is received for the service after three months, a $200 credit is made to accrued income and a $200 debit is made to cash. Consequently, the accrued income balance for the customer returns to zero.

This concludes our discussion on the concept of Accrued Income, an important topic of Accountancy for Commerce students. Keep following us for more such interesting topics.

Also See:

• Accrued Expenses Definition and Examples

• Disposable Income Formula

• Mcqs on Accounting Equation

• Income and Expenditure Account

• Basic Accounting Terms