Adjusting Entry for Accrued Income

What Is Accrued Income? Accrued income is money that’s been earned but that isn’t received during the accounting period. Examples of accrued income include interest on deposits, rent, commissions, and discounts. Since accrued income accumulates in the current year, it should be credited to the income statement (trading and profit and loss account), and the … Read more

Accrued Interest

Accrued Interest: Definition Accrued interest refers to the payment made for the use of money. Many loans or notes are interest-bearing and have the following characteristics: Principal or face amount: The amount lent or borrowed Maturity date: The date the loan must be repaid Maturity value: The total of the principal and interest at the … Read more

Prepaid Assets

What Are Prepaid Assets? – Definition Prepaid assets are nonmonetary assets whose benefits affect more than one accounting period. They include items such as prepaid insurance and prepaid rent and essentially represent the right to receive future services. However, the rights to these future benefits or services rarely last more than two or three years. … Read more

Income Received in Advance

What Is Income Received in Advance? If a business has received a payment for a service that it has not rendered by the year-end, then this is considered income received in advance. Income received in advance should be excluded from the year’s profit and loss account. In principle, this adjustment resembles an adjustment made for … Read more

Accrued Expenses

Accrued Expenses: Definition Accrued expenses are expenses that have been incurred (i.e., whose benefit or services have already been received) but which have not been paid for. An alternative definition of accrued expenses is that they are expenses that have been incurred but not recorded, necessitating adjusting entries and the inclusion of items such as … Read more

Adjusting Entries and Their Purpose

Adjusting Entries An adjusting entry is an entry that brings the balance of an account up to date. Adjusting entries are crucial to ensure the correct balance and correct information in an account at the end of an accounting period. Before exploring adjusting entries in greater depth, let’s first consider accounting adjustments, why we need … Read more

Adjusting Entries for Interest on Drawings

In accounting, drawings are withdrawals of cash, merchandise, or other items from the business by the owner for their personal use. In certain cases, drawings are treated as loans to the owner, with interest charged at the normal rate. Accounting Treatment The amount of interest charged on drawings is an indirect income of the business. … Read more

Prepaid Expenses

Prepaid Expenses: Definition Unexpired or prepaid expenses are the expenses for which payments have been made, but full benefits or services have yet to be received during that period.  Such payments fall into two portions. The first portion, comprising received benefits, is an expense. As for the second portion, which involves the incoming benefits or … Read more