Adjust income for accruals and receipts in advance
Recognise income earned but not received and defer receipts that relate to a future accounting period.
Section 4.3 · Other payables and other receivables
Cambridge IGCSE Accounting 0452 / (9–1) 0985, 2027–2029 Version 1. These lessons follow the 2027–2029 syllabus only; the separate 2026 syllabus update is not yet mapped. Written practice is self-checked, not an official Cambridge grade. Full timed-paper practice and human subject-teacher review remain pending.
Before you begin
- No previous accounting study is assumed. Keep the business, transaction and accounting period in view, and distinguish a resource, a claim and a performance result.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Income earned by year-end but not yet received is normally recorded as what?
What you will learn
- Adjust income for accrued income
- Adjust income received in advance
- Post the related receivable or liability
Match income to when it is earned
Accrued income has been earned by period-end but not yet received. Add it to period income and recognise a current asset (income receivable). Income received in advance is cash received before the business earns it; deduct it from this period's income and recognise a current liability.
These timing adjustments apply the matching/accruals concept. A cash receipt alone does not prove all the income belongs to the current period.
Make the balancing entries and carry balances forward
For accrued income, debit Accrued income and credit the income account. For income received in advance, debit the income account and credit Income received in advance.
In the income ledger, transfer the adjusted income to the statement of profit or loss. Accrued income carries forward as a debit asset balance; income received in advance carries forward as a credit liability balance.
When cash is received or the service is later provided, clear the asset or liability against the appropriate income or cash entry. Keep the adjustment separate from the cash book's actual receipt.
Pause and explain
Rent received is $2,400, including $300 for next period. What rent income belongs to this period?
Worked example
Commission received during the year is $3,200 and $450 is earned but not yet received at year-end. Find income and the closing ledger balances.
Show the worked solution
- Income = cash received 3,200 + accrued commission 450 = $3,650. Transfer $3,650 from Commission income to the statement of profit or loss.
- Debit Accrued commission $450.
- Credit Commission income $450; the accrued commission account carries forward a $450 debit balance as a current asset.
Answer Commission income transferred to profit or loss is $3,650; accrued commission is a $450 current asset. Adjustment: Dr Accrued commission; Cr Commission income $450.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Rent received during the year is $5,000; $600 is for next year. Calculate this year's income and give the adjustment.
Give me a hint
Defer the receipt that relates to the future period.
Compare my reasoning
- Current income = 5,000 − 600 = $4,400.
- Debit Rent income $600.
- Credit Rent received in advance $600 as a current liability.
Rent income $4,400; liability $600.
Look for these in your work
- Income correct
- Debit correct
- Liability correct
A business earned consulting income of $1,250 that will be invoiced next month. Cash income recorded is $7,800. Give the adjustment, adjusted income and closing ledger balance.
Give me a hint
Recognise the earned amount and receivable even though cash arrives later.
Compare my reasoning
- Debit Accrued income $1,250 and credit Consulting income $1,250.
- Adjusted income = 7,800 + 1,250 = $9,050; transfer this amount to the statement of profit or loss.
- Accrued income carries forward as a $1,250 debit balance, a current asset.
Dr Accrued income $1,250; Cr Consulting income $1,250. Income transferred to profit or loss: $9,050. Accrued income asset: $1,250.
Look for these in your work
- Receivable entry correct
- Income transfer correct
- Asset balance correct
A club received $2,100 for services; $500 of work will be delivered next year. Calculate current-period income and explain the closing balance.
Give me a hint
Only the service delivered by period-end is earned in this period.
Compare my reasoning
- Current income = 2,100 − 500 = $1,600.
- The business owes $500 of future service.
- Credit Income received in advance $500 as a current liability.
Current income is $1,600; income received in advance is a $500 liability.
Look for these in your work
- Income period correct
- Future obligation identified
- Liability stated
Common mistakes
- Deducting accrued income from income
- Treating money received in advance as earned income
- Recording an accrued receivable as cash already received
What can you explain now?
A customer pays $500 for a service to be provided next period. What is the amount this period?
Compare with the explanation
Income received in advance is a current liability
The business has cash but still owes the future service.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
How does accrued income differ from income received in advance?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.