Accrued income refers to revenue that has been earned by a business but has not yet been received. It is recorded as an asset on the company's balance sheet and recognized as revenue in the income statement. Accrued income is typically associated with services rendered or goods delivered but for which payment has not yet been received.
Here are some key points about accrued income:
- Recognition: Accrued income is recognized when it is earned, regardless of when the payment is received. This principle is based on the accrual basis of accounting, where transactions are recorded when they occur, not necessarily when cash is exchanged.
- Examples: Common examples of accrued income include interest income on investments, rent income, service fees, and sales revenue for which an invoice has been issued but not yet paid by the customer.
- Recording: To record accrued income, a company debits an accrued income account and credits the corresponding revenue account. Once the payment is received, the accrued income account is debited, and the cash or bank account is credited.
- Impact on Financial Statements: Accrued income affects both the balance sheet and the income statement. On the balance sheet, it is listed as an asset under current assets, while on the income statement, it is included as revenue, contributing to the company's total income.
- Disclosure: Companies typically disclose their accrued income in the notes to the financial statements, providing additional details about the nature and amount of accrued income recognized during the reporting period.
Accrued income is an essential concept in accounting as it helps ensure that financial statements reflect a company's true financial position and performance by recognizing revenue when it is earned, regardless of when cash is received.
