Dictionary meaning of the word accrue is accumulated and in case of accounting accrued income refers to that income which the company or individual has earned or accumulated but has not received that income. In case of accounting accrued income is taken into account for the year in which it is earned and not in the year in which income is received. Given below are some of the examples of accrued income –
- If the company has given its premises on rent and company takes rent from the tenant on a quarterly basis and not on a monthly basis then rent income will be treated as accrued income. So if tenant pays rent on 1 April for the period of January to March then company in the books of accounts will show rent as income in profit and loss account and current asset in the balance sheet prepared on 31st march even when the company has not received any cash from tenant.
- Interest income is another example of accrued income because banks pay interest quarterly or half yearly and therefore if company’s financial year is ending on March and bank is paying half yearly interest and months for paying half yearly interest are June and December then company will have to show 3 month interest income accrued up to march as income for the current financial year and remaining 3 month interest will be income for next financial year.
- Another example of accrued income will be contract income, because in case of contracts company who has given the contract do not pay the amount to company doing the contract work and amount is usually paid at the end of contract. However company which has taken the contract will show contract income in the balance sheet according to its financial year and not according to when the contract income is received and hence contract income is another example of accrued income.
Above examples are not exhaustive and other examples can also be added the only condition being is that income should have been earned in current financial year and company has not received the cash in the current financial year.