Learn about accrued income, also known as outstanding income or income receivable, which refers to the income that has been earned but not yet received. Understand the concept, its significance in financial reporting, and how it impacts the balance sheet and income statement.
Accrued income refers to revenue that has been earned but not yet received. It occurs when a company has provided a product or service to a customer before the customer has made the payment for it.
When a company records accrued income, it recognizes the revenue in its financial statements before the actual payment is received. This requires the company to make adjusting entries in its books and records to reflect the revenue earned.
1. Rent Receivable: If a company owns property and leases it to a tenant, but the payment is due at the end of each month, the company will recognize the rental income as accrued income on a monthly basis.
2. Interest Receivable: When a company lends money to another party and is entitled to receive interest, the interest earned during a particular period but not yet received is considered as accrued income.
Recognizing accrued income affects the income statement and the balance sheet of a company:
Accrued income is recorded as revenue, which increases the company's net profit and overall income. It helps in providing an accurate picture of profit earned during a specific period, even though the money hasn't been received yet.
Accrued income is reflected as an asset on the company's balance sheet in the form of accounts receivable or various other accounts. It represents the amount which the company is entitled to receive from its customers or debtors.
Accrued income plays a crucial role in recognizing revenue that has been earned but not yet received. It helps in providing a more accurate representation of a company's financial position and performance. Companies must ensure careful management and accurate recording of accrued income to maintain transparency and financial stability.
Previous term: Accrued Expense
Next term: Accrued Interest
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