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Accrued or Outstanding Income


Just as some of the expenses incurred during the year may not be settled in cash at the end of the year, similarly some incomes may have been earned but have not been received. Thus, accrued incomes are those incomes which have been earned during the accounting period but have not been received till the end of the accounting period. Such incomes are called 'Outstanding incomes' or 'Incomes earned but not yet received'. Common examples of such incomes are commission receivable, income on investments due but not yet received etc. As per the accrual concept of accounting, the full income of the period, both received and yet to be received, should be shown in the Final Accounts otherwise the profit and assets will remain understated. An adjusting entry passed is:
Accrued Income A/c Dr.
To concerned Income A/c

 

Thereafter, the accrued income is treated in the Final Accounts as follows:
  1. Accrued Income is added to the concerned income in the Profit and Loss Account, and
  2. Accrued Income is shown on the assets side of the Balance Sheet as a separate item under Current assets.
Where an accrued income is given in the Trial Balance it means an adjusting entry has already been passed. In such cases, the Accrued Income will be shown only in the Balance Sheet as an asset.

 

Example 3 - Interest on Investments received during the accounting year
Rs. 20, 000. Interest accrued but not received during the accounting year
Rs. 5, 000. Entries required in this respect are:

Accrued Interest A/c Dr. Rs. 5,000
To Interest Received A/c Rs. 5,000

 

Interest Received Account (Rs. 25,000) will be closed by transferring to the credit side of the Profit and Loss Account and Accrued Interest (Rs. 5,000) will be shown as an asset in the balance. This is shown below:

 

Interest Received A/c

Dr.     Cr.

Particulars

Rs.

Particulars

Rs.

To Profit and Loss A/c

25,000

 

 

 

 

25,000

By Bank

By Accrued Interest

20,000

 

5,000

 

 

25,000


Accrued Interest A/c

Dr.     Cr.

Particulars

Rs.

Particulars

Rs.

To Interest

5,000

 

5,000

 

By Balance C/d

5,000

 

5,000

 


Profit and Loss Account

Dr.     Cr.

Particulars

Rs.

Particulars

Rs.

   

By Interest 20,000

Add: Accrued

Interest 5,000

------------

 

 

 

25,000


Balance Sheet

Liabilities

Assets

 

Accrued Interest 5,000





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