treatment of accrued income

This query is : Resolved

SAJEESH (Querist)
Follow

10 January 2017 scenario: accrued income accounted in last financial year. invoiced in current financial year and cash receipt also in current financial year. income recognized in last year because it rendered last year. the entries passed are 31st last year accrued income to income this year invoicing party ac Dr to income Bank ac Dr to party Iam planning to reverse the entry made last year to correct the financial statement, by reversal income become zero and accrued income in BS aslo become zero. is this accounting treatment is right is there any alternative treatment with out reversal

KAVIRAJA ADDANGADI

KAVIRAJA ADDANGADI (Expert)
Follow

10 January 2017 You have already Debited Debtor and Credited sales/service Income is already booked in last year itself this year you only show receipt entry from Debtor for particular revenue.

SAJEESH

SAJEESH (Querist)
Follow

10 January 2017 last year i made only adjusting entry accrued income ac Dr to supervision

SAJEESH

SAJEESH (Querist)
Follow

10 January 2017 invoiced after approval in current year

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
Follow

02 August 2025 Got it — you accrued income last year by debiting Accrued Income and crediting Income, but invoicing and cash receipt happened this year.

### Your question:

* You’re planning to **reverse last year's accrued income entry** to correct financials, but want to confirm if that’s right or if there’s an alternative without reversal.

---

### Typical correct treatment:

1. **Accrued income entry last year:**

```
Dr Accrued Income (Balance Sheet)
Cr Income (P&L)
```

2. **This year, when invoicing is done:**

```
Dr Debtors (Accounts Receivable)
Cr Accrued Income (to clear accrued income)
```

3. **When cash is received:**

```
Dr Bank/Cash
Cr Debtors
```

---

### So, you do **not reverse last year's entry**; instead you clear the accrued income by crediting it at invoicing.

If you reverse last year’s entry, then last year's income will reduce and the financials won’t reflect revenue recognition in the correct period.

---

### Alternative without reversal:

* Leave last year's accrued income entry as is.
* In current year, on invoicing, credit accrued income instead of income.

---

### Summary:

| Event | Entry |
| --------------------------- | ------------------------------ |
| Last Year (Accrual) | Dr Accrued Income / Cr Income |
| Current Year (Invoicing) | Dr Debtors / Cr Accrued Income |
| Current Year (Cash Receipt) | Dr Bank / Cr Debtors |

This way revenue is recognized in last year, and balance sheet shows accrued income cleared in current year.

---

If you reversed last year's entry, revenue for last year would be understated — which is incorrect.

---

**Want me to help you prepare the journal entries or explain how to present in financial statements?**

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now