Accrued Income

Definition:

Accrued Income is income that is recognised or earned in the current accounting period, but hasn't been paid yet (eg. interest or dividends received). In the income statement, the income account will be credited while in the statement of Financial Position, a new account called accrued income will be created which is a current asset. This is a current asset as it is probable that economic benefit will flow to the business in the next accounting period. The cash flow statement will not be affected as no cash has been received and it does not follow the accrual basis.

Example:

Rent received for the year is $200,000. An additional $200 has been earned in the current accounting period but has not yet been received. Use the accrual basis to explain how this will be reported in the financial statements of the business.

Despite the fact that the $200 has not yet been received, because it has been earned in the current accounting period it must be recorded in the current financial statements. In the income statement, rent received will be credited by $200, as this $200 relates to the current accounting period. Therefore, the total rent received for the current accounting period will be $200,200. In the statement of financial position, a new account will be created called accrued income, which will be a current asset. This is a current asset as the future economic benefit will flow to the business when the $200 cash is received for rent. Accrued income will be debited by $200. The cash flow statement is not affected as it is not prepared following the accrual basis like the income statement and the statement of financial position.

Credits:

Created with images by cpastrick - "ledger accounting business" • stevepb - "calculator calculation insurance"

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