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Accrued Income: Money Earned But Not Yet Received

Updated May 20, 2024

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What Is Accrued Income?

Accrued income is the money a company has earned in the ordinary course of business but ha🔯s yet to be received, and for which the invoice is yet to be billed to the customer.

Mutual funds or other pooled assets that accumulate income over a period of time—but only pay shareholders once a year—are, by definition, accruing their income. Individual companies can also generate income without actually receiving it, which is the basis of the 澳洲幸运5官方开奖结果体彩网:accrual accounting system.

Key Takeaways

Accrued income is revenue that's been earned, but has yet to be received.
Both individuals and companies can receive accrued income.
Although it is not yet in hand, accrued income is recorded on the books when it is earned, in accordance with the accrual accounting method.

Understanding Accrued Income

Most companies use accrual accounting. It is an alternative to the 澳洲幸运5官方开奖结果体彩网:cash accounting method and is necessary for companies that sell products or provide services to customers on credit. Under the U.S. 澳洲幸运5官方开奖结果体彩网:g𒆙enerally accepted accounting principles (GAAP), accrual accounting is based on the 澳洲幸运5官方开奖结果体彩网:revenue recognition principle. This principle seeks to match revenues to the period in which they were e📖arned, rather th𒆙an the period in which cash is received.

In other words, just b🧸ecause money has not yet been received, it does not mean ꦿthat revenue has not been earned.

The matching principle also requires that revenue be recognized in the same period as the expenses that were incurred in earning that revenue. Also referred to as 澳洲幸运5官方开奖结果体彩网:accrued revenue, accrued income is often used in the service iꦯndustry or in cases in which customers are charged an hourly rate fo🐻r work that has been completed but will be billed in a future accounting period.

Accrued income i𓆉s listed in the asset section of the balance sheet because it represe🐲nts a future benefit to the company in the form of a future cash payout.

Revenue Recognition

In 2014, the 澳洲幸运5⛄官方开奖结果体彩网:Financial Accoℱunting Standards Board, which establishes regulations for U.S. businesses and non-profits, introduced "Accounting Standards Code Topic 606 Revenue From Contracts With Customers" to provide an industry-neutral revenue recognition model to increase financial statement comparability across companies and industries.

The FASB also issued the following amendments ꦫto ASU No. 2014-09 to provide clarificatio🍒n on the guidance:

-ASU No. 2015-14, Revenue From Contracts With Customers (Topic ಌ606) – Deferral of the Effective Date

-ASU N💫o. 2016-08, Revenue From Contracts With Customers (Topic 606)🌳 – Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)

-ASU No. 2016-10, Revenue From Contracts With💧 Customers (Topic 606) – Identifying Performance Obliga🌠tions and Licensing

-ASU No. 2016-12, Revenue From Contracts With Customers (Topic 606) – Narrow-Scope Improvements and Practical Expedients

Examples of Accrued Income

Assume Company A picks up trash for local communities and bills its customers $300 at the end of every six-month cycle. Even though Company A does not receive payment for six months, the company still records a $50 debit to accrued income and a $50 credi🌟t to revenue each month.

The bill has not been sent out, but the work has been performed, and the𝔍refore expenses have already been incurre𒈔d and revenue earned.

When cash is received for the service at the end of six months, a $300 credit in the amount of the full payment is made to accrued income, and a $3🎐00 debit is made to cash. The balance in accrued income returns to zero for that customer.

Accrued income also applies to individuals and their paychecks. The inc🧔ome that a worker earns usually accrues over a period of time. For example, many salaried employees are paid by their company every two weeks; they do not get paid at the end of each workday.

At the end of the pay cycle, th♚e employee is paid and the accrued amount returns 𝄹to zero. If they leave the company, they still have pay that has been earned but has not yet been disbursed.

Is Accrued Income an Expense or a Liability?

Accrued income is recorded as an asset on a company's balance sheet while accrued expenses are recorded as liabilities.

What Is an Example of Accrued Revenue?

If a company performed a service in May and charged $1,000 f🌺or it but was not paid till August, it would record that sale in May (accrued) and recognize it when it was received in August.

Is Accrued Income a Debit or a Credit?

Accrued income will be recorded as a credit to an income account and as a debit to account🎃s receivable on the balance sheet after the service has been provided but before payment has been received.

The Bottom Line

Accrued income is a method of recording inc🥃ome under the accrual method of accounting. Income is recorded as it is incurred rather than when it is received. This stands in contrast to the cash accounting method which only records income and other figures, ꦰsuch as sales, when cash is in hand.

Article Sources

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Financial Accounting Standards Board. "."
American Institute of Certified Public Accountant. "."

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