Accrued Income
(Part 2)

Previous lesson: Accrued Income (Part 1)
Next lesson: Define Expenses

Alright, in our previous example the Smiths owed us $5,000 for catering provided for a funeral, and were going to pay this at the end of April.

g) The Smiths pay the full amount owed to George’s Catering on the 30th of April. Now what do we do?

Well, the easiest part of this transaction is that we receive cash (of $5,000). So bank goes up. But what happens with our debtor? Our debtor (asset) exists currently in our records at $5,000. If the Smiths are now paying us, does this mean that they owe us less, or more, or that there is no change?

Answer: They owe us less. In fact, they don’t owe us anything now.

So we increase our cash by $5,000, and we decrease our debtors by the same figure to zero.

George’s Catering still consists of assets of $35,000, but this is now made up of baking equipment to the value of $12,000, and $23,000 cash.

The debtor amounts to zero dollars – this makes sense as we are showing that the debt towards George’s Catering no longer exists.

As you can clearly see here, income is not the same as cash. Income isthe event itself. The cash is a separate element of accounting. Income is the event that takes place that results (either immediately or later on) in more assets for your business.

The income did (eventually) result in more cash for the business – as it should.

IMPORTANT: Do not move forward if you're even a little confused. Instead, take a step back to the previous lesson or back to the simpler example of cash income in the lesson entitled Define Income.

Go over these lessons again. If you're still having trouble, return to earlier sections you didn't feel very cool about, even things early on in the section on Basic Accounting Concepts. See if you can spot anything you didn't quite get the first time. Then return to this lesson and review it once again.

When you're comfortable with the concepts we just went over, move forward.

Return to Basic Accounting Transactions

Return to the Home Page

Previous lesson: Accrued Income (Part 1)
Next lesson: Define Expenses

Enjoying this Website?
Help Support it with a Donation


Questions Relating to This Lesson

Click below to see questions and exercises on this same topic from other visitors to this page... (if there is no published solution to the question/exercise, then try and solve it yourself)

Journal Entry Question: Settlement of Debtors Account, Bad Debts
Q: Prepare the journal entry or entries for the following transaction: Issued a receipt for R105 to B. Baloyi in settlement of his account of R126. …

Is cash flow affected
Q: Is cash flow affected for a company when they have entered into a terms agreement with their customers and no longer receive cash upfront, but sales …

Should the assets figure not be $35,000?
Q: I just noticed the text in this Accrued Income Part 2 lesson says, "George’s Catering still consists of assets of $30,800, but this is now made up …


Have your say about what you just read! Leave me a comment in the box below.

Advertise on

privacy policy

Related pages

what is an adjusting entryyear end accounting entriesstockholders equity equationsimplified cash flow statementlifo and fifo for dummiessample p&l statement small businesshow do you compute gross profitcounterfoil definitionhow do you find percent markupexample cash flow statement direct methoddouble entry for accounts receivablewhat does partial settlement meanhow to fill out a columnar padfull accounting equationtrial balance adalahsimple ledger templatehow to calculate interest receivableassets liabilities capital equationinventory ledgermanagerial accounting formulasjournal entry for accrual of expensesdifference between lifo and fifo accountingretained earning definitionbrought hindi meaningaccounting concepts and principles with examplessample statement of stockholders equitygross profit formula calculatorjournal entry for machinery purchasecalculate factory overheadcash flow statement in excel formatdeposit slip meaningformula to calculate vatmeaning of debitedpayables definitioncalculate ex vatcash journal templateformula to calculate cogsbank overdraft in balance sheetwhat is the definition of accountancytrial balance ledgersimple balance sheet format exceltypes of accounting conceptsdouble entry bookkeeping explainedwhat is wip inventorysample ledgerowners equity t accountcorporate balance sheet templatecarting meansexplanation of debits and creditsoffice supplies expensewhat is the meaning of ledger in accountingledgers in accountinghow to compute markupoffice supplies expense accountingsellbackbooks.comcalculate total liabilitiesblank accounting journalpetty cash journal entrycash disbursement formatdoubtful accounts journal entryaccounting entries for vatclassified income statement formatmarkup pricing formulawhich journal would adjusting entries be foundwhat is journalizing in accountingbuy cheap college textbooksrent due to landlord journal entryjournaling accountingdouble entry for debtorsaccounting balance sheet equationunderstanding debit and credit in accountingexplain the accounting cyclegeneral ledger examplecalculate ending retained earningsdefine revenue expenditurepetty cash in balance sheettransaction cycles in accountingreturn of capital journal entrylifo costing methodthe fundamental accounting equation isaccounting words dictionary