Accrued Income journal Entry

Accrued Income journal Entry

Accrued Income journal Entry-

Meaning of Accrued income  and accrued income journal entry-

Accrued income means income earned but not received till the end of the accounting year. For example, interest on securities or dividends on shares, which has become due but may be received on a date falling in the next year.

Such income does not appear in the trial balance but should be duly accounted for in the year, because such income has accrued.

Or

Income earned but not received at the end of financial year , called accrued income. It may sometime happen that certain items of income such as a interest on fixed deposit, Dividend on shares, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income.

Keeping in view matching principle and accrual concept, the basis of double entry system, we should record the total income earned irrespective of the fact whether any portion of income has been received or not.

Not recording of accrued income would be understatement of income to the extent of outstanding income. Also, not recording the accrued income will lead to understatement of assets too.

If we do not make the entry of accrued Income, neither we will know the correct profit and loss nor will we be able to know the true financial position of the business enterprise. Therefore, it is necessary to pass journal/adjustment entry for earned income to know the correct profit or loss and true financial position of the business enterprise

Now we shall move to discuss the adjusting entry and presentation of accrued income in the final accounts-

Also read : Format of Profit And Loss Account

Accrued Income journal Entry-

  • Accrued income, assets of the business and rules of assets account , Assets increase debit , decrease credit.
  • Income, revenue of the business and rules of revenue account, Revenue increase credit ,decrease debit.

Assets increase in the form of Accrued income, so according to rules Accrued income account Debited.

Reverue increase in the form of Income , so according to rules Income account credited.

Treatment in final Accounts-

* Add to the concerned income on Credit side of Profit and Loss A/c

* Shown on the assets side of BALANCE SHEET.

If Accrued Income given in trial balance-

* Shown on the Assets side of the BALANCE SHEET.

Accrued Income journal Entry-

Example-

 

  • Accrued Interest on Investment Rs. 5,000. Make Accrued Income journal Entry.

 

Also read : Format of Trading Account

Also read : REVALUATION ACCOUNT/ PROFIT & LOSS ADJUSTMENT ACCOUNT

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