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Accrued Income Meaning

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Accrued Income Meaning

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अभिजीत आखाडे
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Accrued Income Meaning

Accrued income is referred to as the income that is earned but not yet received. In other words, it
can be said that accrued income is any income that is earned but obtained by the business.

It forms the basis of accrual accounting, under this system revenue earned in an accounting period
should be realised in the same accounting period and not when the revenue is actually received.

Accrual accounting is used as an alternative to the cash accounting system. It is mostly used by
businesses which are involved in selling goods and services to customers on credit.

Accrued Income Journal Entries

As accrued income pertains to the current accounting period, therefore it must be considered as
current year income.

Following journal entries can be made:

Accrued Income A/c Dr.

To Income A/c

(For recording of accrued income)

Accrued income A/c is positioned on the asset side of a balance sheet. During the preparation of
Trading and Profit and Loss account, this accrued income is added to the particular income.

Accrued Income Examples

Accrued income concept can be explained better with the following example.

A company ABC supplies solar power to a locality and charges each household ₹6000 per 6 months.
While the company receives no payment for six months, the company still reports ₹1000 debit to
accumulated profit and ₹1000 revenue credit per month.

When payment in cash is received for the service after six months, a ₹6000 credit in the amount of
the full payment is made to accrued income and a ₹6000 debit is made to cash. The accrued
income balance returns to zero for the customer.

This was all about the concept of Accrued Income, which is considered an important topic of
Accountancy for Commerce students. For more such interesting topics, stay tuned to BYJU’S.

Understanding Accrued Expenses

Accrued expenses or liabilities occur when expenses take place before the cash is paid. The expenses
are recorded on an income statement, with a corresponding liability on the balance sheet. Accrued
expenses are usually current liabilities since the payments are generally due within one year from the
transaction date.

Some typical cases of accrued expenses include:

• Goods and services have been consumed, but bills have not yet been received.

• The utility is consumed in one month, and the bill is received in the next month.

• Salaries are not paid to employees until the end of the payment period.

At the end of each recording period, a company should properly estimate the dollar amount for each
of its accrued expenses, and then record it as an expense account with a corresponding
payable/accrued expense liability.
The format of the journal entry is shown below:

Accrued expenses example

For example, a company consumes $5,000 utility in February. The expense for the utility consumed
remains unpaid on the balance day (February 28). The company then receives its bill for the utility
consumption on March 05 and makes the payment on March 25.

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