Published on Aug 26, 2024Updated on Oct 15, 2026
Understand how accrued income is recognised, recorded, and treated in accounting, with practical examples, journal entries, comparisons, and key considerations for businesses.
Accrued income is income that a business has earned but has not yet received by the end of an accounting period. It is recorded when it is earned rather than when the payment is received, helping present a more complete view of revenue for that period.
Understanding the accrued income meaning is important for accurate financial reporting, as there may be a gap between providing a product or service and receiving payment for it. Tracking such income can also support cash flow planning and provide a clearer picture of a business's financial position.
This article explains how accrued income works, along with its advantages, examples, and the difference between accrued and deferred income.
The accrued income definition refers to revenue already earned in an accounting period but not yet received and, often, not yet billed.
Accrued income is revenue that has already been earned during an accounting period but has not yet been received and, often, has not yet been billed. Under accrual accounting, it is recognised in the period in which it is earned and recorded as an asset through an adjusting entry.
The exact calculation of accrued income depends on the type of income and the circumstances in which it is earned. For example, accrued interest for a period may be calculated as:
Accrued Interest = Principal × Interest Rate × Time
This calculation assumes the applicable interest rate and the portion of the period for which interest has been earned but remains unreceived.
For a simple accrued income example, suppose a business completes services worth Rs. 10,000 in March but has not yet raised an invoice or received payment by the end of the month. The Rs. 10,000 may be recognised as accrued or unbilled revenue for March, subject to the applicable accounting requirements and contract terms.
Once the business raises an invoice, the amount is generally reclassified from accrued or unbilled revenue to a trade receivable. An amount that has already been invoiced but is still awaiting payment would generally be recorded as a trade receivable rather than accrued income.
Accrued income can arise in different situations where income has been earned during an accounting period but remains unreceived at the period end. Common examples include:
These examples involve different types of income, but the underlying principle is the same: the income has been earned before the related cash is received. Recognition and measurement should follow the applicable Accounting Standards or Ind AS, as well as the relevant contract terms.
The key features of accrued income include:
The accounting entries may involve three stages when income is earned before it is billed and received.
|
Account |
Debit (Rs.) |
Credit (Rs.) |
|
Accrued Income |
Amount |
|
|
Income/Revenue |
Amount |
At the end of the relevant accounting period, accrued income is debited as an asset, while the corresponding income or revenue account is credited.
|
Account |
Debit (Rs.) |
Credit (Rs.) |
|
Trade Receivable |
Amount |
|
|
Accrued Income |
Amount |
Once the invoice is raised, the amount is transferred from accrued income to trade receivables.
|
Account |
Debit (Rs.) |
Credit (Rs.) |
|
Bank |
Amount |
|
|
Trade Receivable |
Amount |
When the customer makes the payment, the bank account is debited, and the trade receivable is cleared.
The exact account names and entries may vary depending on the entity's chart of accounts and the applicable accounting framework.
A reversal of accrued income generally refers to reversing an adjusting entry recorded in an earlier accounting period. This may be done at the beginning of the following accounting period to prevent the income from being recognised twice when the actual transaction is subsequently recorded.
For example, suppose Rs. 50,000 of income was accrued at the end of an accounting period. The original entry would be:
|
Account |
Debit (Rs.) |
Credit (Rs.) |
|
Accrued Income |
50,000 |
|
|
Income/Revenue |
50,000 |
If the entity uses reversing entries, the following entry may be recorded at the beginning of the next accounting period:
|
Account |
Debit (Rs.) |
Credit (Rs.) |
|
Income/Revenue |
50,000 |
|
|
Accrued Income |
50,000 |
This reverses the previous adjusting entry. The actual income transaction can then be recorded in the normal manner when it is invoiced or received.
However, not every clearing of accrued income is a reversing entry. If the accrued amount is subsequently invoiced without first being reversed, it may instead be transferred to trade receivables by debiting trade receivables and crediting accrued income. If payment is received directly, the appropriate entry may clear the accrued income against the bank account. The exact treatment depends on the entity's accounting process, chart of accounts, and applicable accounting framework.
Consider a consultancy firm that completes services worth Rs. 2,00,000 for a client in March. The work has been completed, but the client has not yet been invoiced or made the payment by 31 March. The accrued income of Rs. 2,00,000 is therefore recognised for March.
The accrued income journal entry would be:
|
Account |
Debit (Rs.) |
Credit (Rs.) |
|
Accrued Income |
2,00,000 |
|
|
Consulting Revenue |
2,00,000 |
Here, accrued income is debited because an asset is being recognised for the amount earned but not yet received. Consulting revenue is credited to recognise the income in the period in which the services were provided.
If an invoice is raised later, the amount would generally be transferred from accrued income to trade receivables. When the client pays, the bank account would be debited and the trade receivable credited. The exact account names may differ depending on the entity's chart of accounts.
Recognising accrued income can support financial reporting and planning in several ways:
Note: The recognition and treatment of accrued income should follow accrual accounting and the Accounting Standards or Ind AS applicable to the entity, including relevant revenue-recognition principles and contract terms.
Accrued income is recorded when income has been earned during an accounting period but has not yet been received and, where applicable, has not yet been billed. The process generally involves the following steps:
Under accrual accounting, accrued income is recognised in the period in which it is earned, even if the amount has not yet been received and, where applicable, has not yet been billed. The corresponding amount is recognised as an asset, while the income earned is recorded in the income statement.
Accrued income is generally presented as a receivable or other asset on the balance sheet, depending on the nature of the amount and the applicable accounting framework.
If an invoice is raised later, the accrued amount is generally transferred to trade receivables. When payment is received, the bank account is debited, and the corresponding receivable is credited.
The main difference between accrued income and deferred income is the timing of earning the income and receiving the related payment. Accrued income has already been earned but has not yet been received, while deferred income is payment received before the related goods or services have been provided.
For example, suppose a consultancy completes services worth Rs. 50,000 in March but has not yet billed the client. The amount is accrued income for March. In contrast, if the consultancy receives Rs. 50,000 in March for services to be provided in April, the amount is deferred income until those services are provided.
The accounting entries can be illustrated as follows:
|
Type |
When It Arises |
Debit |
Credit |
|
Accrued Income |
Income has been earned before payment is received |
Accrued Income |
Revenue |
|
Deferred Income |
Payment is received before income is earned |
Bank |
Deferred Income |
Deferred income is not recognised as revenue immediately. As the related goods or services are provided, the appropriate amount is transferred from deferred income to revenue.
Accrued income and accounts receivable both represent amounts that a business has earned but has not yet received. The key difference is whether the amount has been invoiced. Accrued income generally relates to income that has been earned but not yet billed, while accounts receivable generally represents an amount that has already been invoiced and is awaiting payment.
|
Item |
Earned? |
Invoiced? |
Cash Received? |
Typical Balance-Sheet Label |
|
Accrued Income |
Yes |
No |
No |
Other asset/receivable |
|
Accounts Receivable |
Yes |
Yes |
No |
Trade receivable |
Once an invoice is raised for previously accrued income, the amount is generally transferred from accrued income to trade receivables. When payment is received, the trade receivable is cleared.
The timing of taxation for accrued income in India can differ from its recognition in financial accounts. For tax purposes, income may be computed using the cash or mercantile system of accounting, depending on the method regularly employed by the taxpayer and the applicable provisions of tax law.
Under the mercantile system, income is generally accounted for when the right to receive it arises, even if payment is received later. Under the cash system, income is generally accounted for when it is received. The tax treatment and timing can vary depending on the nature of the income and the applicable provisions.
Businesses and individuals should consult a chartered accountant or other qualified tax professional to determine the appropriate treatment for their specific circumstances.
Accrued income helps businesses account for revenue in the period in which it is earned, even when payment is received later. Recording it correctly can provide a clearer view of revenue, amounts due, and the overall financial position of the business.
Additionally, as a business owner, you may look for external sources of finance such as business loans. Correctly maintained accrued income can give a clearer picture of the business's financial health and revenue prospects to lenders. This can boost their confidence in the financial stability and creditworthiness of the business, strengthening your loan application.
For tailored, unsecured business loans at competitive interest rates and flexible repayment options, look no further than SMFG India Credit.Contact us today to find the best fit for your unique business needs.
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The calculation depends on the type of income. For example, accrued interest may be calculated by multiplying the principal amount by the applicable interest rate and relevant time period.
Accrued income is generally earned but not yet billed or received. Accounts receivable usually represents income that has already been invoiced but remains unpaid. Once accrued income is invoiced, it may be transferred to accounts receivable.
Accrued income is revenue earned but not yet received, while an accrued expense is a cost already incurred but not yet paid. Accrued income is recorded as an asset, whereas an accrued expense is recorded as a liability.
Accrued income and accrued revenue are often used to describe the same concept: revenue earned during an accounting period but not yet received and, often, not yet billed. The terminology used may depend on the entity's accounting practices.
Accrued income is recognised as an asset because it represents income already earned but not yet received. Its classification as a current or non-current asset depends on the nature of the amount and the applicable accounting framework.
Accrued income should be cleared when the previously recognised amount is transferred or settled, depending on the accounting process followed. A reversal journal entry may also be made at the beginning of the following accounting period where appropriate.
The accrued income journal entry generally involves debiting accrued income, recognising an asset, and crediting the relevant income or revenue account. If an invoice is subsequently raised, the accrued amount is generally transferred to trade receivables.
No. Accrued income represents revenue that has been earned but not yet received and, often, not yet billed. It is recognised as an asset, while the related revenue is recorded in the income statement for the relevant accounting period.
Accrued income can be checked against supporting records, such as contracts and agreements, to confirm that the income was earned during the relevant period. Subsequent invoices and receipts may also be reviewed to verify the amount recorded.
Accrued income is recognised as an asset, with the related revenue recorded in the period in which it is earned. If subsequently invoiced, it is generally transferred to trade receivables, which are cleared when payment is received.
Common examples include interest, rent, royalties, and income from services performed but not yet billed. Dividend income may also qualify when the entity's right to receive payment has been established under the applicable accounting framework.
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