Accrued Income

Accrued Income: Money Earned But Not Yet Received

Key takeaways
* Accrued income (accrued revenue) is revenue that has been earned but not yet received in cash.
* It is recorded when earned under accrual accounting, not when cash is collected.
* Accrued income is reported as an asset on the balance sheet and reversed when payment is received.

What is accrued income?

Accrued income arises when a company (or individual) performs work or earns revenue before billing or receiving payment. It reflects a future cash benefit and is recognized when the earnings process is complete, even if the invoice hasn’t been issued.

How it works (accounting principles)

Accrued income follows the revenue recognition and matching principles of accrual accounting:
* Revenue is recognized in the period it is earned, not necessarily when cash arrives.
* Expenses related to earning that revenue are matched to the same period.
Under U.S. GAAP, accounting for revenue is guided by standards established by the Financial Accounting Standards Board, including ASC Topic 606 (Revenue from Contracts with Customers), which provides an industry-neutral framework for recognizing revenue.

Accounting treatment

Typical journal entries:
* When revenue is earned but not received:
– Debit: Accounts receivable (or “accrued income”) — asset
– Credit: Revenue (income statement)
* When cash is received:
– Debit: Cash
– Credit: Accounts receivable (or “accrued income”)

Classification and terminology:
* Accrued income = asset on the balance sheet.
Accrued expenses = liability on the balance sheet.
In double-entry terms, accrued income is recorded as a debit to an asset (receivable) and a credit to revenue.

Examples

• Service business on a billing cycle: A waste removal company completes monthly service but bills every six months. Each month it recognizes a portion of the fee as accrued income (debit receivable, credit revenue). When the six-month invoice is paid, the receivable is cleared and cash is recorded.
• Employee pay: Salaried employees earn wages each workday, but paychecks are issued biweekly. Wages earned but unpaid at a period end are accrued as an asset to reflect the earned—but not yet disbursed—amount.

Common questions

Is accrued income a debit or credit?
* It’s recorded as a debit to an asset account (accounts receivable) and a credit to a revenue account.

Is accrued income an asset or liability?
* Accrued income is an asset; accrued expenses are liabilities.

When is revenue recognized under accrual accounting?
* When the company satisfies its performance obligations and earns the revenue, regardless of when cash is collected.

Bottom line

Accrued income ensures financial statements reflect earnings in the period they are earned, providing a more accurate view of performance than cash-based reporting. It is recorded as an asset and reversed when payment is received.