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 is the payment 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 repaid. Maturity value—the total of the principal and interest at the maturity date. Interest rate—the percentage … 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 already received a payment for a service, which it has not rendered by the year-end, then such an income received in advance and should be excluded from that year’s Profit & Loss Account. This adjustment resembles, in principle, to prepaid expense adjustment. Example (Adjusting Entries … Read more

Accrued Expenses

What are Accrued Expenses? – Definition Accrued Expenses are the expenses that have been incurred, i.e. whose benefit or services have already been received, but which have not been paid for. Or Accrued expenses are those expenses that have been incurred but have not been recorded, necessitating the adjustment entries and the inclusion of such … 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 to find the correct balance and correct information at the end of an accounting period. Before explaining adjusting entries, let us know about accounting adjustments, why we need adjustments, and the effects of accounting adjustments. Accounting Adjustments: Introduction The … Read more

Adjusting entry for interest on drawings

In accounting, drawings mean the withdrawal of cash, merchandise or another item from business by the owner for his personal use. Sometimes, drawings are treated just like a loan to the owner and interest at normal rate is charged thereon. Accounting Treatment The amount of interest charged on drawings is an indirect income of the … Read more

Prepaid Expenses

What are Prepaid Expenses? – Definition Unexpired or prepaid expenses are the expenses for which payments have been made but full benefits or services have not been received during that period. Such payments can be divided into two portions. The portion for which benefits have been received is an expense and the portion for which … Read more