What is Accrued Income?
Accrued income refers to the income that a business or a person has generated through their regular activities but has not yet been collected or billed. It is shown as an asset on the balance sheet and follows the accrual accounting method that aligns revenues and expenses to the time when they happened. Some instances of accrued income are interest income from investments, rent income from tenants, or income from services that have been completed but not yet invoiced.
Examples of Accrued Income
Accrued income can arise from various sources, such as:
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Interest earned on a loan or a bond that the borrower or the issuer has not paid.
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Rent earned on a property but has not yet been collected from the tenant.
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Services performed for a customer that has not been invoiced or paid.
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Goods delivered to a buyer that has not been billed or paid.
Advantages of Accrued Income
Accrued income has the following advantages:
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It reflects the true economic performance of a business by matching the revenue with the expenses incurred in the same period.
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It improves the cash flow management of a business by anticipating the future inflows of cash.
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It enhances the creditworthiness of a business by showing its ability to generate income from its assets and operations.