Accrued Income & Journal Entries

It may so happen that we may earn some incomes during the current accounting year but not receive them in the same year. Such income is referred as accrued income.

It can be any income for which the company gave goods and services to the customer, but customer payment is pending.

Such income is treated as an asset for the business.

For recording transactions, the accrual basis of accounting is usually followed by the concerns. Hence, as per this concept Income must be recorded in the accounting period in which it is earned. Therefore, accrued income must be recognized in the accounting period in which it arises rather than in the subsequent period in which it will be received.

Some examples of accrued income are , rent earned but not collected, interest earned but not received etc.

It is also known as income receivable, income accrued but not due, outstanding income and income earned but not received.

JOURNAL ENTRY FOR ACCRUED INCOME

The Journal entry to record accrued incomes is:

Accrued Income A/c  (Dr.)         xxx

     To Income  A/c                             xxx

(Being recording of accrued incomes )

 

The Accrued Income A/c appears on the assets side of the Balance Sheet. While preparing the Trading and Profit and Loss A/c we need to add the amount of accrued income to that particular income.

 

Example :-

An amount of Rs. 6,000 was not received as interest earned on debentures in the current accounting year.

Here, the journal entry to be passed will be :-

 

Accrued Interest A/c  (Dr)    Rs 6,000

       To Interest received A/c       Rs 6,000

(Being interest receivable on debentures )

 

 

Thus, in simple words, Accrued income is the income that has been earned but not yet received & is recognized in the accounting period in which it arises but not in the subsequent accounting period when it is received.

Accounting & Finance for Banking

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