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Accrued Income

Reviewed by Sujaini | Updated on Oct 05, 2020

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What is an Accrued Income?

Accrued profit has been obtained but is not yet receivable. By definition, mutual funds or other pooled assets which accumulate income over some time but only payout to shareholders once a year accrue their income. Personal companies can also receive revenue without necessarily earning it, which is the basis for accrual accounting.

Many companies are using accrual accounting. This is the alternative to a cash accounting system, and businesses that sell goods or offer credit services to consumers need to do so.

Understanding Accrued Income

The matching theory demands that revenue be accepted in the same period as expenditures incurred in receiving the money. Often known as accrued revenue, accrued revenue is also used in the service sector or in situations where consumers are paid an hourly rate for work that has been done but will be billed in a future accounting period.

Accrued revenue is listed in the balance sheet asset section as it provides a potential gain for the corporation in the form of a possible cash payment.

Examples of Accrued Income

At the end of every six months, assume that Company A collects garbage for local communities and bills its customers Rs.300. While Company A receives no payment for six months, the company still reports Rs.50 debit to accumulated profit and Rs.50 revenue credit per month. The bill was not sent out, but the job was finished, and so costs were already incurred and revenue received.

When the cash for the service is obtained at the end of six months, Rs.300 credit is added to defer income in the amount of the full bill, and Rs.300 debit is made to cash. For that consumer, the difference in the accumulated sales falls to zero.

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