Harness Money

What is accrued income?

Accrued income refers to income that has been earned but has not yet been received or recorded in the financial statements. It represents an amount that is owed to a company for goods sold or services rendered but for which the payment has not yet been received.

Accrued income is recognized through an adjusting journal entry at the end of the accounting period to ensure that revenues are properly recorded in the period in which they are earned, regardless of when the actual cash is received.

Examples of accrued income include:

1. Interest income: If a company has loaned money or invested in interest-bearing securities, the interest earned but not yet received is recorded as accrued income.

2. Rental income: If a company owns rental properties and rents them out, but the rent payment for a certain period has not yet been received, the amount owed is recognized as accrued income.

3. Service income: If a company has provided services to a client but has not yet received the payment, the amount owed for the services rendered is recorded as accrued income.

Accrued income is important for accurate financial reporting, as it ensures that revenues are recognized in the appropriate accounting period, regardless of when the cash is received. Once the payment is received in a subsequent accounting period, the accrued income is reduced, and the actual cash is recorded.

It’s worth noting that accrued income represents an asset for the company, as it is an amount owed to them. The company expects to receive the cash in the future, and the accrued income reflects that expectation in the financial statements.