What is Accrued income | Example | Journal Entry

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  1. What is Accrued income?
  2. Journal entry for Accrued income with the golden rule.
  3. Journal entry for Accrued income with the modern rule.

1. What is Accrued income?

Accrued income means that income which is earned but not received. in other words, the income earned by the company by providing services to the other company or individual but payment of that services are still pending. According to the rule and principle of the accounting, income/expense is recorded in the books of that financial year in which actual it has earned/due. So, That’s why we have to create the account of accrued income.

Example:

  1. Rent earn but not received yet from the tenant for Rs 1,500/-.
  2. Insurance claims due but not received yet for Rs. 5,570/-.
  3. Commission no sale of other products earn but not received yet Rs. 10,500/-.

2. Journal entry for Accrued income with the golden rule.

Example:

01/02/2018 Rent earn but not received yet from the tenant for Rs 1,500/-.

So in this transaction, we will treat two accounts with the golden rules of accounting shown as following.

  1. Accrued Rent A/c -> Representative personal A/c* -> Personal Rule -> Tenant using our cash for other propose. So, he is the receiver  -> Debit

  2. Rent received A/c -> Income A/c -> Nominal Rule -> Rent Earned -> Credit

The journal entry for the transaction is the following:

Journal entry for accrued income - What is Accrued income | Example | Journal Entry
The Journal entry for accrued income

3. Journal entry for Accrued income with the modern rule.

Example:

01/02/2018 Rent earn but not received yet from the tenant for Rs 1,500/-.

So in this transaction, we will treat two accounts with the golden rules of accounting shown as following.

  1. Accrued Rent A/c -> Asset A/c -> Asset Rule -> Increase in asset  -> Debit

  2. Rent received A/c -> Income A/c -> Income Rule -> Increase in income -> Credit

The journal entry remain same as above:

Journal entry for accrued income - What is Accrued income | Example | Journal Entry
The Journal entry for accrued income

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