Accrued income refers to the revenue that has been earned but not yet received in cash. It is recorded in the books of accounts when a business has completed a service or delivered goods, even though the payment will come later.
This concept follows the accrual basis of accounting, which ensures income is recognised when earned, not when received.
Understanding the Accrued Income Meaning
In simple terms, accrued income arises when a company or individual has a legal right to receive money for a product or service already provided.
For example, a consultancy firm may finish a project in March but receive payment in April. The income still belongs to March’s financial period.
Why is Accrued Income an Asset?
Accrued income is an asset because it represents future economic benefits that a business expects to receive. It is shown under “current assets” in the balance sheet.
This reflects the money owed to the business for work completed, helping present a true and fair view of its financial position.
Recording Accrued Income in Profit and Loss Account
In accounting, accrued income in the profit and loss account is credited as income for the period it is earned.
At the same time, a corresponding debit entry is made in the “accrued income” or “accounts receivable” account in the balance sheet. This adjustment ensures revenue is recorded accurately, even before the actual payment is received.
A Practical Accrued Income ExampleSuppose a company lends ₹1,00,000 to a client at 10% annual interest on January 1. By March 31, three months’ interest of ₹2,500 is due but unpaid.
This ₹2,500 is accrued income, as it is earned but not yet received. It will be recorded as income for that financial year and as an asset on the balance sheet.
