Glossary term
Accrued Income
Accrued income is income that has been earned but not yet received in cash or, in some cases, not yet invoiced.
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What Is Accrued Income?
Accrued income is income that has been earned but not yet received in cash. In accounting, it is usually recorded when a business has performed the work, delivered the goods, or otherwise earned the revenue, even if payment will arrive later.
The term can also appear in investing. Interest on a bond, for example, may accrue between payment dates. The owner has earned income over time even though the cash coupon is paid only on scheduled dates.
Key Takeaways
- Accrued income is earned income that has not yet been received in cash.
- It is part of accrual accounting.
- Businesses may record accrued income before invoicing or collection.
- Investors may see accrued income with bonds and other interest-bearing assets.
- Accrued income can improve period matching but does not guarantee cash has arrived.
How Accrued Income Works
Suppose a consulting firm completes work in March but sends the invoice in April and receives payment in May. Under accrual accounting, the firm may record the revenue in March because the income was earned then. The offset is usually an asset such as accrued revenue or accounts receivable.
When cash is later collected, the receivable is reduced and cash increases. The revenue is not recorded again because it was already recognized when earned.
Accrued Income in Different Settings
Setting | Example | Financial statement effect |
|---|---|---|
Service business | Work completed before invoice is sent | Revenue and receivable may be recorded |
Lender or bond investor | Interest earned between payment dates | Interest income accrues over time |
Landlord | Rent earned but not yet collected | Rental income may be recognized before cash receipt |
Contract work | Milestone earned under contract terms | Revenue recognition depends on contract and accounting rules |
Why It Matters
Accrued income helps match revenue to the period when it was earned. That can make financial statements more meaningful than cash timing alone. A business with seasonal billing, long contracts, or delayed collections may need accrued income entries to show performance accurately.
The concept also matters because earned income is not the same as collected cash. A company can show revenue and still face liquidity pressure if customers pay slowly. Investors and lenders often compare accrued income, receivables, and cash collections to understand earnings quality.
Accrued Income Versus Accounts Receivable
Accrued income and accounts receivable are closely related but not always identical. Accrued income often refers to revenue earned before an invoice is issued or before payment is due. Accounts receivable usually refers to amounts invoiced and owed by customers.
In practice, businesses may use account names differently, so the important question is whether the income has been earned, invoiced, collected, or still estimated.
The Bottom Line
Accrued income is income earned before cash is received. It helps align revenue with the period when economic activity occurred, but readers should still check whether the income has turned into cash.