IGCSE Accounting for Accrued Income
We will learn when a business records income as earned and when income is considered accrued. We will also learn how to adjust for accrued income and the recording in the income account and financial statements.
The income account covered in this lesson is used to record other income earned by the business and does not include the sales revenue account of a trading business.
Related Lessons:
Determining Accrued Income
Income is regarded as earned when goods or services has been provided, regardless of whether payment is received.
Income is regarded as owing or accrued when goods or services has been provided but payment was not received. Therefore, accrued income is a current asset to the business.
To calculate accrued income:
- Calculate total income earned for the accounting period.
- Determine the total amount received for the accounting period.
- Amount earned in excess of the total amount received is regarded as accrued income.
Adjusting for Accrued Income Brought Forward
Income owing in the previous accounting period is carried forward to the next accounting period for payment to be received. At this point, the amount is no longer treated as a current asset.
Therefore, the amount is transferred from the current asset account to the income account so that the total income for the year are reduced, as this amount was not actually an income of the current period
This amount is recorded as “Balance brought down” on the debit side of the income account.
Recording Accrued Income
1. Accrued income brought forward is recorded on the debit side as “Balance brought down”
2. Income received during the year increases our income, and is therefore recorded on the credit side as Cash or Bank
3. Income earned for the current period is recorded on the debit side as Income Statement
4. Accrued income for the current period is recorded on the credit side as “Balance carried down”
Recording in the Financial Statements
Amount transferred from the income account to the Income Statement is recorded in the Income Statement as an Income.
The amount of accrued income at the end of the current accounting period is recorded in the Statement of financial position under Current Asset as Other Receivables.