Accrued and deferred income
Income is matched to the year too. Record income earned but not yet received, and money received before it is earned.
In this room: 3 tasks, 10 questions
- Accrued income: earned but not yet received3 questions
- Deferred income: received but not yet earned4 questions
- The four adjustments side by side3 questions
The accruals idea works for income too. Income goes into the year it is earned.
The joinery lets a corner of its workshop to Dunmore Upholstery for £250 a month. Dunmore pays every three months, after the quarter ends. Its next payment, on 31 January, covers November, December and January.
At 31 December the rent for November and December has been earned but not received. That is accrued income, and it is shown under current assets.
- Debit Accrued income: an asset, because Dunmore owes this money
- Credit Rental income: the income for the year goes up
Answer the questions below
2 more questions follow in this task.
Deferred income is money received this year for work that will be done next year. Until the work is done, the business owes it.
On 1 December, Fellgate Hotel pays the joinery £1,800 for a furniture care contract. It covers the 6 months from 1 December to 31 May. The whole receipt was credited to Contract income.
Only December has been earned by the year end. The other five months are deferred income, shown under current liabilities.
- Debit the income account: the income for the year goes down
- Credit Deferred income: a liability, because the joinery still owes the work
Answer the questions below
3 more questions follow in this task.
| Adjustment | What it is | Shown as |
|---|---|---|
| Accrued expense | A cost used, not yet paid | Current liability |
| Prepaid expense | A cost paid, not yet used | Current asset |
| Accrued income | Income earned, not yet received | Current asset |
| Deferred income | Income received, not yet earned | Current liability |
Each one is either something the business owes or something the business is owed.
Answer the questions below
2 more questions follow in this task.