Loading the player...

What is 'Accrued Income'

Accrued income is earned but has yet to be received. Mutual funds or other pooled assets that accumulate income over a period of time but only pay out to shareholders once a year are by definition accruing their income. Individual companies can also accrue income without actually receiving it, which is the basis of the accrual accounting system.

BREAKING DOWN 'Accrued Income'

The income that an employee earns is accrued over a period of time. At the end of the pay cycle, the employee is paid and the accrued amount returns to zero. Many employees are paid every two weeks; they do not get paid at the end of each work day. If they leave the company, they are paid for that day of pay because it is earned, but it has not been paid out yet.

Accrual Accounting

Most companies use accrual accounting. It is the alternative to a cash accounting system, and a necessary system for companies that sell products to customers on credit. Accrual accounting is based on an accounting convention that seeks to match expenses and sales to the period when they occurred. Just because money has not been received or billed does not mean it has not been earned. Also referred to as accrued revenue, accrued income is often used in the services industry or cases in which customers are charged an hourly rate for work that will be billed in a future accounting period.

Accrual Income Example

For example, assume company A picks up trash for local communities, and bills customers at the end of every six-month cycle. Even though company A does not receive payment for six months, the company still records the payment as a debit to accounts receivable. The bill has not been sent out, but the work has been performed, and therefore revenue has been earned. If the company charges $2 million a month for this service, it accrues $2 million in revenue every month for six months, and bills the customer for $12 million every six months.

Accrued Income and Accrued Receivables

It is important to note the difference between accrued income and accrued receivables. Accrued income has not been billed. It is a receivable by definition, so it is listed as a receivable on the balance sheet, but the customer has not received the invoice. Once cash is received, the entry is reversed with a credit, and cash is debited for the amount of incoming cash.

RELATED TERMS
  1. Accrued Revenue

    Accrued revenue - a balance sheet asset - is revenue that has ...
  2. Accrued Liability

    An accrued liability is an accounting term for an expense that ...
  3. Accrual Rate

    Accrual rate refers to the rate of interest that is added to ...
  4. Accrued Expense

    An accrued expense is an accounting expense recognized in the ...
  5. Flat Bond

    A flat bond is a debt instrument that is sold or traded without ...
  6. And Interest

    And interest is a slang phrase used when quoting the price of ...
Related Articles
  1. Investing

    What's Accrued Interest?

    Accrued interest has two meanings. In accounting, it is interest that has been earned, but the time for payment has not yet occurred.
  2. Investing

    How To Decipher Accrual Accounting

    Accrual accounting is an important method of measuring the performance and position of a company. Learn more on how its used.
  3. Investing

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.
  4. Personal Finance

    8 Quick-Cash Alternatives To Credit Card Advances

    Sometimes you can find a better deal than a cash advance – but some alternatives are even more pricey. Learn where to find the cheapest source of quick cash.
  5. Investing

    Analyze cash flow the easy way

    Learn the key components of the cash flow statement, how to analyze and interpret changes in cash, and what improved free cash flow means to shareholders.
RELATED FAQS
  1. How do you record adjustments for accrued revenue?

    Understand what accrued revenue is and what it's used to measure. Learn how an accountant would record an adjustment to accrued ... Read Answer >>
  2. What does it mean to capitalize accrued interest?

    Companies capitalizing accrued interest add up the amount of interest owed since the last debt payment made and add that ... Read Answer >>
  3. What's the difference between accrued expenses and provisions?

    Read about the differences between accrued expenses and provisions, and why a company might record one over the other in ... Read Answer >>
  4. What is the difference between revenue and profit?

    Revenue is the total amount of income generated by a company. Profit is the bottom line or net income after accounting for ... Read Answer >>
  5. What is accrued interest, and why do I have to pay it when I buy a bond?

    An investor who sells a bond must be compensated in coupon payments for the period they owned the bond, defined as the interest ... Read Answer >>
Trading Center