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.