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Accrued Revenue

Also known as outstanding revenue, receivable revenue and earned revenue

Revenues or incomes which have been earned by a business but not yet received

For example a telephone company has provided services worth $1000 to a person, but that person has not yet paid the telephone charges ($1000) which means $1000 is still receivable from that person. Since the company has earned that telephone fee, the company will consider the $1000 as income or revenue (Accrued income)

Nature of accrued income or revenue

Accrued revenue is a resource of the business that possesses the future economic benefits for the business. Therefore, accrued revenue is always accounted as an asset of the business

Double entry for Accrued revenues

DEBIT = Accrued revenues account

CREDIT = Revenues account


Example

XYZ Construction Company owns a big building. The building was useless for the XYZ construction company. Therefore, the management of company decided that they should rent building to another business and they did so on 1st January, 2012. The rent of building was receivable at the end every 3 months

Here is the detail of rent receipts by the company


Amount of Income
Income due on
Income received on

   $500
   $500
   $500
   $500

   31 March 2012
   30 June 2012
   30 September 2012
   31 December 2012


   7 April 2012
   6 July 2012
   9 October 2012
   8 January 2012   


Requirement: You are required to calculate the amount income pertaining to this accounting period or the amount of income that should be charged in income statement for the year ended on 31 December, 2012

Solution:

These double or journal entries were made by business at the time of expenses payments

On   7 April 2012 Company received cash $500 as rent of building

  DESCRIPTION DEBIT CREDIT



  Cash   $500



               Rent income   $500




6 July 2012  XYZ Company again received rent $500 at the end of another 3 months

  DESCRIPTION DEBIT CREDIT



   Cash   $500



               Rent income   $500




9 October 2012 Another payment of $500 received by company 


  DESCRIPTION DEBIT CREDIT



   Cash   $500



               Rent income   $500





On 8 January, 2012  Mr. Z  paid telephone expenses for 3 months in advance

  DESCRIPTION DEBIT CREDIT



   Cash   $500



               Rent income   $500




8 January 2012 XYZ construction company received $500 after the end of accounting period. Since the business has earned this income in this accounting period, the income is related to this period and should be recorded in the this period not in the next accounting period. Therefore, the business has made an adjusting entry for accrued income on 31 December, 2012 which include this income in the total rent income of this year

The following adjusting entry was made on 31 December, 2012 to allocate income to this accounting period

  DESCRIPTION DEBIT CREDIT



   Accrued Rent income   $500



               Rent income   $500




Now you just have to post the above journal entries in the rent income account to find out the "Total rent income" for this accounting period




DEBIT
Rent income A/C*



CREDIT
DATE
DESCRIPTION
AMOUNT
DATE
DESCRIPTION
AMOUNT
Dec. 31Income statement
$2000
Apr. 7
July. 6
Oct. 9
Dec. 31
Cash
Cash
Cash
Accrued income
$500
$500
$500
$500

TOTAL $2000
TOTAL $2000

$2000 is "Total amount of income" that should be charged to this accounting. This income will be shown in income statement or profit and loss account

*A/C=Account
* BF=Balancing figure