Accrued income is the money you’ve earned but haven’t received yet. This could be interest from investments, rent, or payments for services you’ve already provided.
While it may sound like a technical accounting term, it’s really about understanding your actual earnings. By keeping track of income even before payment arrives, you get a clearer view of your finances and can make smarter decisions.
Here’s a simple guide to what accrued income is, why it matters, and how you can record it easily.
What is Accrued Income?
Accrued income is money you’ve earned but haven’t received yet. For example, if you provide a service this month but get paid next month, that income is considered accrued.
Under the accrual system, it’s recorded in your accounts as soon as it’s earned, not when the payment arrives. This helps show your true earnings and gives a clearer picture of your financial situation.
What are the Benefits of Accrued Income?
Accrued income helps businesses and individuals track money they have earned but not yet received. Recognizing this income comes with several benefits, making financial management easier and more accurate.
1. More Accurate Financial Records
By recording income when it is earned rather than when it is received, businesses get a clearer picture of their actual earnings. This helps in understanding the true financial position at any given time.
2. Smarter Business Decisions
When businesses know exactly how much they have earned, they can plan better. Whether it’s setting budgets, making investments, or planning future expenses, having complete financial information leads to better decision-making.
3. Compliance with Accounting Rules
Accrued income follows important accounting standards like GAAP and IFRS, which businesses must follow for accurate reporting. This helps in keeping the financial records in line with regulations and avoids any legal or reporting issues.
4. Better Cash Flow Planning
Tracking income that is due but not yet received helps businesses predict future cash inflows. This allows them to manage expenses, plan payments, and avoid cash shortages.
5. Clearer Financial Transparency
Accrued income helps investors, lenders, and other stakeholders see the exact amount a company is owed. This builds trust and gives them confidence in the company’s financial health.
How to Record Accrued Income?
To keep your financial records accurate, you need to record accrued income properly. Here’s how you can do it in four simple steps:
1. Identify the Earned Income
First, figure out the income you’ve earned but haven’t been paid for yet. This could be interest from an investment, rent from a tenant, or payment for services provided.
2. Record a Journal Entry
Now, you need to enter this income into your records:
- Debit “Accrued Income” (Asset Account): This shows that you are owed money.
- Credit “Income/Revenue”: This ensures that the income is counted in the correct period.
3. Update the General Ledger
After making the journal entry, transfer the details to your general ledger. This helps keep your financial statements organized and accurate.
4. Adjust When You Receive the Payment
Once the payment arrives, update your records:
- Debit “Cash/Bank”: To show the money is now in your account.
- Credit “Accrued Income”: To remove it from the list of pending payments.
Sometimes payments get delayed, creating cash flow gaps. A LoanTap business loan with affordable interest rates can help cover expenses, pay employees, or invest in growth, keeping your business running smoothly even while waiting for receivables.
Examples of Accrued Income
Let’s look at some examples of accrued income under different scenarios.
1. Investment Interest
If a company invests in bonds that pay interest periodically, any interest earned before it’s actually received is recorded as accrued income. For example, three months’ interest earned by year end is counted even if payment comes later.
2. Rental Income
Rent due in the next month is still counted for the current month if it has been earned. For instance, rent for December received on January 1st is recorded as December’s income.
3. Service-Based Businesses
A consultancy finishing a project in December but invoicing in January still counts the December earnings as accrued income.
4. Utility Services
Electricity or water used in one month but billed in the next is recorded in the month it was consumed to reflect true earnings.
5. Royalties and Commissions
Authors, musicians, or sales professionals count income in the period it’s earned, even if payment is received months later.
6. Credit Sales
Products delivered on credit are recorded as income when delivered, not when the customer pays, to show actual revenue for the period.
7. Loan Interest
Banks and financial institutions record interest that accrues monthly, even if borrowers pay later, as accrued income.
Summary
Accrued income is key to accurate financial planning and management. By recording earnings when they are earned, not just when received, you get a clear picture of your financial health and can make smarter decisions.
Whether you’re an entrepreneur, investor, or business owner, understanding accrued income helps track real revenue and plan effectively. At the same time, delayed payments can create cash flow gaps. Flexible financing can help bridge this.
LoanTap offers business loans up to ₹10 lakhs with quick approvals, minimal paperwork, and customized repayment options, allowing businesses to maintain smooth operations and continue growing even while waiting for receivables.
Frequently Asked Questions
Is accrued income an asset or liability?
Accrued income is an asset because it represents money that is owed to the company and will be received in the future.
How is accrued income different from deferred income?
Accrued income is earned but not yet received. Whereas, Deferred income is received but not yet earned (e.g., advance payments for services to be delivered later).
How do businesses adjust for accrued income?
Adjustments are made by reducing the accrued income balance when payments are received, ensuring financial statements remain accurate.
How can businesses manage accrued income effectively?
Companies can use invoicing systems, follow up on receivables, and explore financing options like business loans to manage cash flow while waiting for payments.
Can a business loan help manage accrued income issues?
Yes! If delayed payments are affecting cash flow, a business loan from LoanTap can help cover operational costs while waiting for receivables. LoanTap offers flexible repayment options and quick approvals to keep businesses running smoothly.
