Accrued Income and Income Received in Advance

Accrued (Outstanding) Income

Meaning: income that has been EARNED during the year but not yet RECEIVED by the closing date — e.g. interest on a fixed deposit earned for the year but credited by the bank only in the following month.

Double effect:

1. Added to the relevant income in the Profit and Loss Account (the income figure in the Trial Balance understates what was truly earned this year).
2. Shown as a Current Asset in the Balance Sheet (the business is owed this amount).

Income Received in Advance (Unearned Income)

Meaning: income that has been RECEIVED during the year, but part of it relates to services/benefits the business must still provide in a FUTURE period — e.g. rent received in March for the following April-June quarter.

Double effect:

1. Deducted from the relevant income in the Profit and Loss Account (the income figure in the Trial Balance overstates what was truly earned this year).
2. Shown as a Current Liability in the Balance Sheet (the business owes this benefit to the payer, even though the cash is already held).