Accrued income meaning
Accrued income is an income which is earned but not yet received. Accrued income can be of two types :
- Income accrued and due but not yet received
- Income accrued but not due and not yet received
Accrued income is also known as income receivable. Lets see a simple example to understand this.
Simple Example of accrued income
When a student Ruchi reached class 12 then his father promised to give her a prize of Rs 5000 is she scores 90% marks in board exams. After the board exam results came, Ruchi scored 92% marks. Now her prize income is earned and is due. She asked her father to give the prize. Father said that he will give after few days.
This is income due but not received. This is called accrued income. Till the date father gives Rs 5000 to Ruchi it will remain an accrued income for Ruchi.
Example of Income accrued and due
Suppose you're a landlord, and you rent out a property to a tenant for ₹50,000 per month. The rental period is from March 1 to March 31. However, the tenant doesn't pay the rent until April 5.
In this case:
- You earned the rent income in March, but you didn't receive the payment until April.
- As of March 31, you have accrued income of ₹50,000, which is the amount you're entitled to receive but haven't yet received.
Example of Income accrued but not due
Suppose you have made a fixed deposit in a bank. Interest is payable six monthly on each 30th June and 31st December. Now as on 31st March , you have earned the interest for three months i.e. from January to March. The interest is accrued for three months but you will get it only on 30th June as the payment date is 30th June. This is income accrued but not due.
Types of Income
Income can be various types. Few examples of income are Rent, Interest, Dividend, Commission, Royalty. Few examples of accrued income can be :
- Accrued Rent or Rent receivable means rent which is due but not yet received.
- Accrued commission or commission receivable means commission which is due but not yet received.
- Accrued interest or interest receivable means interest which is due to be received but not yet received.
- Similarly for Dividend and Royalty.
Meaning of 'Unaccounted'
One more term you will find in such questions is "Unaccounted". It means that no entry is passed yet in the books of accounts for this income.
How adjustment given in the question
- Unaccounted accrued commission income of Rs 2000 to be provided for.
- An unaccounted commission receivable of Rs 2000 be accounted.
- Accrued interest income of Rs 2000 to be provided.
- An Accrued income of Rs 2000 does not appear in the books of the firm. It is now to be accounted.
Please note that what whatever the language in question is, the adjustment will be done in similar manner as explained further.
Understand the accrued income adjustment
Accrued income is an asset. Debit and Credit rules for assets will apply. So increase in accrued income gets debited and decrease in accrued income gets credited.
As the income is yet unaccounted so there is some asset which is not yet recorded in books of accounts.
It means that Book Value of such assets is NIL. Now we have to record asset in books. When we record the asset in books of account then the book value will of the asset increase and there will be Revaluation profit.
Journal Entry
- Accrued Income Dr.. Rs 2000
- To Revaluation A/c Rs 2000
Accrued income is an asset which is increasing so it gets debited. When there is increase in assets we have revaluation profit, so revaluation account gets credited.
Accrued income in Revaluation Account
| Particulars | Amount | Particulars | Amount |
| By Accrued Income A/c | 2000 |
Since there is revaluation profit, so accrued income will be shown on credit side of revaluation account.
Remember in examination question replace the word "income" by the type of income like rent, interest, dividend, etc. as given in the question.
Accrued Income in Partner Capital A/c
| Particulars | X | Y | Particulars | X | Y |
There will be no impact in partner's capital account for the adjustment for accrued income
Accrued Income in Balance Sheet
| Liabilities | Amount | Assets | Amount |
| Accrued Income | 2000 |
In the balance sheet the value of Assets will be increased. In our example the on the assets side we will write Accrued income Rs 2,000.
Remember in examination question replace the word "income" by the type of income like rent, interest, dividend, etc. as given in the question.
Finally
It's important to remember that this adjustment process applies to any income which is unaccounted for the firm. The examination question can give any income like rent, interest, dividend, royalty, commission, etc.
Also note that the same steps as explained above apply to do this adjustment whether the question is for a) change in the profit sharing ratio b) admission of a partner c) retirement of a partner or in case of d) death of a partner
You need not understand the adjustments separately for these chapters.
Summary
