5 journal entries related to accrued income
Answers
Accrued income is income which has been earned but not yet received.
Income must be recorded in the accounting period in which it is earned. Therefore, accrued income must be recognized in the accounting period in which it arises rather than in the subsequent period in which it will be received.
As income will be credited to record the accrued income, a corresponding receivable must be created to account for the debit side of the transaction. The accounting entry to record accrued income will therefore be as follows:
Debit Income Receivable (Balance Sheet)
Credit Income (Income
Statement)
Example
ABC LTD receives interest of $10,000 on bank deposit for the month of December 2010 on 3rd January 2011. ABC LTD has an accounting year end of 31st December 2010.
ABC LTD will recognize interest income of $10,000 in the financial statements of year 2010 even though it was received in the next accounting period as it relates to the current period. Following accounting entry will need to be recorded to account for the interest income accrued:
Debit Interest Income Receivable $10,000
Credit Interest on Bank Deposit (Income) $10,000
On the date of receipt of interest (i.e. 3rd January of the next year) following accounting entry will need to be recorded in the subsequent year:
Debit Bank $10,000
Credit Interest Income Receivable $10,000
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Accrued Income Journal Entry Example #1
Suppose ABC Ltd earned an interest income on the investment of $30,000 in which only $25,000 is received and $5,000 is still needed to be receiving.
Accrued Income Journal Entry Example #2
Here are some more examples for journal entries:
Abhaas Mittal ltd. gives some space of the building on rent and renter agreed to pay the rent on monthly basis. In the month of June renter didn’t pay the rent and ask the landlord to pay in next month. So, for this scenario adjustment entry should be:
Accrued Income Journal Entry Example #3
Jagriti Pvt Ltd lent $10,000 at 10% interest on March 1, 2015. The amount needs to be collected after 1 year. At the end of March, no entry was entered in the journal regarding interest income.
Interest is earned through the passage of time. In the case above, the $10,000 principal plus a $1,000 interest will be collected by the company after 1 year. The $1,000 interest pertains to 1 year.
However, 1 month has already passed. The company is already entitled to 1/03 of the interest, as prorated. Therefore the adjusting entry would be to recognize $83.33 (i.e. $1,000 x 1/12 ) as interest income.