Adjusting Entry for Accrued Revenue

Accrued income (or accrued revenue) refers to income already earned but has not yet been collected. At
the end of every period, accountants should make sure that they are properly included as income.
When a company has performed services or sold goods to a customer, it should be recognized as income
even if the amount is still to be collected at a future date.
If no journal entry was ever made for the above, then an adjusting entry is necessary.

Pro-Forma Entry
The adjusting entry to record an accrued revenue is:
mmm dd Receivable account*

x,xxx.xx

Income account**

x,xxx.xx

*Appropriate receivable account such as Accounts Receivable, Rent Receivable, Interest Receivable, etc.
**Income account such as Service Revenue, Rent Income, Interest Income, etc.

Here's an Example
In our previous set of transactions, assume this additional information:
On December 31, 2014, Gray Electronic Repair Services rendered $300 worth of services to a client.
However, the amount has not yet been collected. It was agreed that the customer will pay the amount on
January 15, 2015. The transaction was never recorded in the books of the company.
In this case, we should make an adjusting entry to recognize the income since it has already been
earned. The adjusting entry would be:
Dec 31 Accounts Receivable
Service Revenue

300.00
300.00

Here are some more illustrations.

More Examples: Adjusting Entries for Accrued Income

Example 1: Company ABC leases its building space to a tenant. The tenant agreed to pay monthly rental
fees of $2,000 covering a period from the 1st to the 30th or 31st of every month. On December 31, 2014,
ABC Company did not receive the rental fee for December yet and no record was made in the journal.

Under the accrual basis, the rent income above should already be recognized because it has already
been earned even if it has not yet been collected. The adjusting journal entry would be:
Dec 31 Rent Receivable

2,000.00

Rent Income

2,000.00

Example 2: ABC Company lent $9,000 at 10% interest on December 1, 2014. The amount will be
collected after 1 year. At the end of December, no entry was entered in the journal to take up the interest
income.
Interest is earned through the passage of time. In the case above, the $9,000 principal plus a $900
interest will be collected by the company after 1 year. The $900 interest pertains to 1 year.
However, 1 month has already passed. The company is already entitled to 1/12 of the interest, as
prorated. Therefore the adjusting entry would be to recognize $75 (i.e. $900 x 1/12 ) as interest income:
Dec 31 Interest Receivable
Interest Income

75.00
75.00

The basic concept you need to remember is recognition of income. When is income recognized? Under
the accrual concept of accounting, income is recognized when earned regardless of when collected.
If the company has already earned the right to it and no entry has been made in the journal, then an
adjusting entry to record the income and a receivable is necessary.