Mid-size or large businesses often collect partial or gradual payments on accounts or manage accounts paid on credit. In order to track these revenue streams, accountants use accrual basis accounting methods for recording partial, unpaid and credit-based accounts. When it comes to tracking accrued income, accrual basis methods apply in the same fashion for balance sheet records. In effect, accrued income and accrued revenue differ in how they appear within a company’s bookkeeping records.
Financial Accounting Practices
Financial accounting methods use techniques that allow accountants to keep an up-to-date record of cash flow transactions as well as periodic updates on a company’s asset holdings. One such method, known as accrual basis accounting, makes it possible to record revenue transactions as they occur on a company’s monthly or quarterly income statement ledgers. This means partial payment accounts, credit accounts and unpaid accounts all show current amounts, regardless of any outstanding balances. For financial accounting purposes, companies track income earnings on balance sheet ledgers since income gained or lost affects a business’ asset holdings. So, the main difference between accrued income and accrued revenues has to do with how they appear on a company’s income statement and balance sheet records.
A company’s revenue sources may result from product sales or payments for services rendered depending on how a business makes money. Accrued revenues appear within the accounts receivables portion of a company’s income statement. Items under accounts receivables have yet to be paid in full and may include gradual payment schedules for different customers. For each accounting cycle, accountants record revenue and expense transactions on an ongoing basis. At the end of an accounting cycle, net income amounts from the income statement transfer over to the balance sheet ledger. Net income amounts reflect either a profit or loss depending on whether or not a company’s revenues exceeded its expenses.
Differences between accrued income and accrued revenue relate to the primary differences between income and revenue within the accounting process. As net income amounts transfer over to the quarterly or yearly balance sheet ledger, any accrued revenues within an accounting cycle appear as accrued income within the asset category on the balance sheet. Within the assets category, accrued income appears under the current assets section, which includes an accrued receivables account. And while the actual income recorded in these accounts has yet to materialize, business owners can better manage present and future cash flows when armed with this information.
When tracking accrued income and revenue accounts, accountants use a double-entry bookkeeping system that records account transactions on both the income statement and balance sheet. A double-entry bookkeeping system uses a debit and credit technique that tracks payment transactions for accrued revenue and accrued income accounts. So, when a customer makes a payment, the income statement record shows a debit for “monies” owed and a credit for “monies paid.” When recording accrued income on the balance sheet, the accrued income category includes a liabilities and assets column. So, any payments made during an accounting cycle appear as a debit under the liabilities column and a credit under the assets column.