An accrued income journal entry is the accounting entry made when a business earns income but has not received the cash yet. This income is recorded in the books to match the earnings with the correct time period. Yes, the answer to what an accrued income journal entry is lies in its very name—accrued means earned but not received. This type of entry follows the accrual basis of accounting, which says you must record income when you earn it, not when you get the money.For example, if a business gives a service in March but gets paid in April, the income belongs to March. So, it must record that income in March’s books. This entry helps show the right profit and loss of a company for a given time.

What is Accrued Income?

Accrued income means the income that a business has earned during an accounting period, but the payment for it will be received in the next period. This type of income is not yet in the bank, but it still counts as earned because the service or goods have already been provided.

This income is common in many fields. For example, if you rent out a building and the tenant pays rent late, you still earn that rent every month. Or if you give a service like consultancy in March but get paid in April, you must show that income in March.

Businesses record accrued income to follow the matching principle of accounting. This rule says businesses must match income with the time it was earned, not when cash is received. This gives a clear and fair view of a company’s financial position.

Accrued income appears on the assets side of the balance sheet, under current assets. This is because it is money the business expects to receive soon.

Key Features of Accrued Income

• It is earned but not yet received.
  
• It is recorded at the end of the accounting period.
  
• It follows accrual basis of accounting.
  
• It is an asset because the company will get the money later.
  

Some examples of accrued income are:

• Rent earned but not received
  
• Interest earned but not received
  
• Commission earned but not yet paid
  

Now that you know the meaning of accrued income, let’s move to how to pass the Accrued Income Journal Entry.

Accrued Income Journal Entry Format and Explanation

Every time you record accrued income, you need to follow a proper format. The journal entry for accrued income is simple and follows basic accounting rules. The main idea is to debit the accrued income account and credit the income account.

This is because you are increasing your assets (accrued income) and also increasing your income (like rent or interest income).

Format of Accrued Income Journal Entry:

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
31-Mar-20XX	Accrued Income A/c Dr.      To Income A/c(Being income earned but not received)		XXXXX	XXXXX

Example 1:

A business earns ₹10,000 as rent income on 31st March, but the tenant will pay it in April.
Journal Entry on 31st March:

• Accrued Rent A/c Dr. ₹10,000
      To Rent Income A/c ₹10,000
  (Being rent income earned but not yet received)
  

Example 2:

You earn interest of ₹5,000 on a fixed deposit, but the bank will pay in next month.
Journal Entry:

• Accrued Interest A/c Dr. ₹5,000
      To Interest Income A/c ₹5,000
  

This entry helps you record the income in the current year’s Profit & Loss account. At the same time, it also appears in the balance sheet as a current asset.

The same logic applies to other types of accrued incomes too. Always remember, when income is due but not yet received, it becomes accrued income.

Why is Accrued Income Important in Accounting?

Accrued income helps keep accounting records correct and fair. When you earn money but don’t record it just because you didn’t get it in cash, your profits will look small. This gives a wrong picture to investors and business owners. That is why you must show all income, whether received or not.

This makes financial statements honest and helpful. It is very important in companies that work on long projects or get paid after service delivery.

Here’s why accrued income journal entry is important:

• It Shows True Profit: When you include all earned income, your profit is correct. This helps business owners plan better.
• It Builds Trust: If investors see that your income is matched with your work, they will trust your reports.
• It Helps in Compliance: Accrual accounting is required by law in most places. Using accrued income entries helps follow rules.
• It Helps in Tax Planning: When you record income correctly, you can also manage your taxes better. You don’t overpay or underpay.
• It Helps in Financial Analysis: Correct income numbers help banks, investors, and business managers make good decisions.

Without these entries, you may report less income, which can confuse people who read your reports.

Treatment of Accrued Income in Financial Statements

You must show accrued income in both the Profit and Loss Account and the Balance Sheet. This helps you match income with time and also show money yet to come.

In Profit and Loss Account: Add the accrued income to the related income head. For example, if you earn interest, add the accrued interest to interest income.

Example:
Interest Income: ₹15,000
Add: Accrued Interest: ₹5,000
Total Interest Income: ₹20,000

In Balance Sheet: Show accrued income under Current Assets. This is money that will come soon.

Example:

Assets

• Current Assets
  
  • Cash: ₹30,000
    
  • Debtors: ₹20,000
    
  • Accrued Income: ₹5,000
    

This double effect helps maintain balance in accounts. One side shows the income, the other side shows the expected cash.

Relevance to ACCA Syllabus

The Accrued Income Journal Entry is key in Financial Reporting (FR) and Strategic Business Reporting (SBR) papers. ACCA students must apply accrual principles to ensure income is correctly recognized. This understanding is essential in preparing true and fair financial statements under IFRS. It also helps students in practical scenarios involving adjustments and working papers.

 Accrued Income Journal Entry ACCA Questions

Q1: What type of account is accrued income?
A) Liability
B) Expense
C) Asset
D) Equity
Ans: C) Asset

Q2: Where does accrued income appear in the financial statements?
A) On the credit side of the Profit & Loss Account
B) Under Non-Current Liabilities
C) Under Current Assets in the Balance Sheet
D) As a note to accounts
Ans: C) Under Current Assets in the Balance Sheet

Q3: What is the correct journal entry for accrued income?
A) Income A/c Dr. To Cash A/c
B) Cash A/c Dr. To Accrued Income A/c
C) Accrued Income A/c Dr. To Income A/c
D) Expense A/c Dr. To Accrued Income A/c
Ans: C) Accrued Income A/c Dr. To Income A/c

Q4: Which accounting principle supports recording accrued income?
A) Conservatism Principle
B) Matching Principle
C) Money Measurement Principle
D) Entity Concept
Ans: B) Matching Principle

Q5: Accrued income will be shown in the trial balance on the:
A) Debit side
B) Credit side
C) Not shown
D) Adjusted in suspense account
Ans: A) Debit side

Relevance to US CMA Syllabus

In the US CMA (Certified Management Accountant) exam, especially in Part 1 – Financial Planning, Performance, and Analytics, students must understand the accrual method of accounting. Recording accrued income aligns with proper revenue recognition and improves the understanding of periodic financial reporting for internal and external users.

 Accrued Income Journal Entry US CMA Questions

Q1: Why do we record accrued income at the period-end?
A) To defer tax liabilities
B) To match expenses with future periods
C) To recognize earned revenue not yet received
D) To show higher profit
Ans: C) To recognize earned revenue not yet received

Q2: Accrued income is recorded under which accounting basis?
A) Cash Basis
B) Modified Cash Basis
C) Accrual Basis
D) Hybrid Basis
Ans: C) Accrual Basis

Q3: Which financial statement is affected by accrued income?
A) Income Statement only
B) Balance Sheet only
C) Both Income Statement and Balance Sheet
D) Cash Flow Statement only
Ans: C) Both Income Statement and Balance Sheet

Q4: What happens if accrued income is not recorded?
A) Income is overstated
B) Assets are overstated
C) Income is understated
D) Liabilities are understated
Ans: C) Income is understated

Q5: How does accrued income impact net income?
A) Increases net income
B) Decreases net income
C) Has no effect
D) Only affects tax calculations
Ans: A) Increases net income

Relevance to US CPA Syllabus

In the US CPA exam, accrued income is essential in both FAR (Financial Accounting & Reporting) and AUD (Auditing & Attestation) sections. Candidates must identify proper journal entries to ensure that financial statements are accurate and meet the requirements of GAAP or IFRS, depending on the reporting framework.

 Accrued Income Journal Entry US CPA Questions

Q1: Under US GAAP, when should accrued income be recognized?
A) When cash is received
B) When invoice is raised
C) When revenue is earned
D) When tax is paid
Ans: C) When revenue is earned

Q2: What is the accounting impact of recording accrued income?
A) Increases liabilities and expenses
B) Increases income and assets
C) Decreases expenses and assets
D) Increases income and liabilities
Ans: B) Increases income and assets

Q3: How should accrued income be treated during an audit?
A) Ignored if below materiality
B) Treated as a prior period item
C) Verified and included in current period income
D) Deferred until collection
Ans: C) Verified and included in current period income

Q4: An example of accrued income is:
A) Rent paid in advance
B) Salary outstanding
C) Interest earned but not received
D) Loan taken from a bank
Ans: C) Interest earned but not received

Q5: Which of the following best explains accrued income?
A) Income received before earning
B) Expense recorded before payment
C) Income earned but not yet received
D) Revenue deferred to next year
Ans: C) Income earned but not yet received

Relevance to CFA Syllabus

In the CFA Program, particularly in Level I – Financial Reporting and Analysis, students must understand how revenues are recognized under the accrual method. Accrued income entries impact financial ratios, earnings quality, and analysis of cash vs non-cash income, which are core parts of equity and credit analysis.

Accrued Income Journal Entry CFA Questions

Q1: Accrued income affects which financial ratio the most?
A) Quick Ratio
B) Return on Assets
C) Inventory Turnover
D) Gross Profit Margin
Ans: B) Return on Assets

Q2: Accrued income is a sign of:
A) Strong cash flows
B) High liquidity
C) Non-cash earnings
D) Overstated liabilities
Ans: C) Non-cash earnings

Q3: Which accounting standard governs revenue recognition for accrued income under IFRS?
A) IFRS 7
B) IFRS 9
C) IFRS 15
D) IFRS 13
Ans: C) IFRS 15

Q4: What is the risk of too much accrued income in financial statements?
A) Lower profitability
B) Weak internal controls
C) Earnings manipulation
D) Cash surplus
Ans: C) Earnings manipulation

Q5: From a valuation perspective, accrued income indicates:
A) Immediate cash availability
B) Deferred asset
C) Future cash inflow
D) Liability towards customers
Ans: C) Future cash inflow