Accounting Treatment of Operating Income - Case 2: Accrued Income

Accrued income is earned income. It is income that has been generated by the organization but cash associated to that income is not yet received by the time the year comes to an end. Accrued income is classified as a current asset for it represents cash yet to be received by the business in the future.

Illustration

By 31/12/2018, Our Co. ltd had actually received cash of $ 225,000 rent income. Assume rent income is usually $25,000 per month

Required;

i)Record the transactions in the rent income account

ii)Extract a P& L account at the end of the year 31/12/2018

iii)Extract a balance sheet as at 31/12/2018

Solution

Option one: Direct Accounting Approach

Option Two: Indirect Accounting Approach

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