What is Accrued Income?
Accrued Income is revenue earned but not yet received in cash or recorded by the end of an accounting period. It represents income that a company has earned for goods delivered or services rendered but hasn’t yet billed or collected payment for.
Definition
Accrued Income is an asset on the balance sheet representing earned revenue that is pending collection and recognition under the accrual accounting method.
Key Takeaways
- Represents income earned but not received.
- Recorded as a current asset on the balance sheet.
- Ensures revenue is matched to the correct accounting period.
- Common in interest income, rent, and professional services.
- Adjusted once cash is received or invoices are issued.
Understanding Accrued Income
Accrued income arises when goods or services have been delivered, but the customer has not yet been invoiced. Under accrual accounting, revenue must be recognized when earned, not when payment is received.
For instance, interest earned on an investment up to a balance sheet date — but not yet received — must be recorded as accrued income.
This ensures that financial statements reflect the true economic activity of a business rather than just its cash position.
Formula (If Applicable)
Accrued Income = Income Earned − Income Received
Example:
If a company earns $10,000 in consulting revenue in December but invoices in January, it records $10,000 as accrued income in December.
Real-World Example
A bank earns interest of $50,000 on loans for December but will receive payments in January. It records $50,000 as accrued interest income at year-end.
Similarly, investment funds report accrued interest on bonds held between coupon payment dates.
Importance in Business or Economics
Accrued income ensures:
- Accurate revenue recognition under GAAP and IFRS.
- Improved financial visibility for stakeholders.
- Enhanced comparability between accounting periods.
- Regulatory compliance with accrual accounting principles.
Economically, it reflects income that has been earned in the current production cycle but not yet monetized, improving the understanding of actual performance.
Types or Variations
- Accrued Interest Income: Interest earned but not yet received.
- Accrued Rent Income: Rent earned but pending payment.
- Accrued Service Revenue: Services performed but unbilled.
- Accrued Dividends: Dividends declared but unpaid.
Related Terms
- Accrual Accounting
- Accrued Revenue
- Deferred Income
- Accounts Receivable
- Revenue Recognition
Sources and Further Reading
- IFRS Foundation – IAS 1: Presentation of Financial Statements.
- FASB – ASC 310: Receivables.
- Investopedia – Accrued Income.
- Corporate Finance Institute (CFI) – Revenue Recognition Principles.
Quick Reference
- Purpose: Recognize earned income before cash receipt.
- Classification: Current asset.
- Examples: Interest, rent, professional fees.
- Standard: Required under GAAP and IFRS.
- Reversal: Upon receipt or invoicing.
Frequently Asked Questions (FAQs)
Is accrued income the same as accounts receivable?
No — accrued income is earned but not yet billed; accounts receivable are invoiced amounts awaiting payment.
Is accrued income an asset or liability?
An asset, as it represents revenue owed to the company.
When is accrued income reversed?
When payment is received or an invoice is issued in the next accounting period.
Why is accrued income important?
It ensures financial statements reflect economic activity rather than just cash movements.
