Accrued income

Question 1

What is accrued income?

Answer 1

When the income is earned (entity has performed a task) during year 1, however cash is only received in year 2

Question 2

How is income received from sale of goods and services in the ordinary course of business processed and provide the bookkeepers JE? (2)

Answer 2

1. Invoice issued
2. Bookkeeper’s journal:
   DR Trade receivables (A)
   CR Sales income (P/L)

Question 3

What often happens to other income, e.g interest and rent (provide the adj JE? (2)

Answer 3

-No invoice issued
-Adjusting journal entry:
DR Accrued XXX income (A)
CR XXX income (P/L)

Question 4

What is typical for a receipt of cash earned NOT from the ordinary course of business?

Answer 4

It is typical for bookkeepers to record this in its own income account

Question 5

What is the adj JE if income is received in the same year its earned?

Answer 5

No adjusting entry required

Question 6

What is the adj JE if income is received the year before it’s earned?

Answer 6

Income received in advance (L)

Question 7

What is the adj JE if income is received the year after it’s earned?

Answer 7

Accrued income (A)

Question 8

How are year 1 accrued income adjustments reveresed on Day 1 of year 2? (2)

Answer 8

• Removing the asset

- Avoiding double-counting the income in year 2