Accounting



What is accrued income?

Accrued income is an amount that has been 1) earned, 2) there is a right to receive the amount, and 3) it has not yet been recorded in the general ledger accounts. One example of accrued income is the interest earned on a bond investment.

To illustrate, let’s assume that a company invested $100,000 on December 1 in a 6% $100,000 bond that pays $3,000 of interest on each June 1 and December 1. On December 31, the company will have earned one month’s interest amounting to $500 ($100,000 x 6% per year x 1/12 of a year, or 1/6 of the semiannual $3,000). No interest will be received in December since it will be part of the $3,000 to be received on June 1. The $500 of interest earned during December, but not yet received or recorded as of December 31 is known as accrued income.

Under the accrual basis of accounting, accrued income is recorded with an adjusting entry prior to issuing the financial statements. In our example, there will need to be an adjusting entry dated December 31 that debits Interest Receivable (a balance sheet account) for $500, and credits Interest Income (an income statement account) for $500.

Learn more about Adjusting Entries.

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.




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10 Responses to “What is accrued income?”

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  3. sara on March 29th, 2010 3:28 am

    valuation of stock

  4. Nessar Ahmad on April 3rd, 2010 11:38 pm

    Hello,

    Could you please send me a template of Cash Flow Statment.

    Thanks,

    Nessar Ahmad

  5. mie on April 9th, 2010 7:49 pm

    thank you for the info.
    it really helps us a lot.

  6. M. Kafil Uddin on April 22nd, 2010 2:10 am

    Under accrual basis accounting : Accrued income means - the income amount which is receivable by a period of time but still not received in cash, should be shown as income in for said period.

  7. M. Kafil Uddin on April 22nd, 2010 2:13 am

    Cash flow statement : for specific period of time the statement in which shown the 1. possibility of cash infrow with breakup and 2. possibility of cash paymnet (outflow) with breakup.

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  10. ritu on August 15th, 2010 5:05 am

    sir,
    i wanted i know some of the adjustment entries for this………

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