Income

In this lesson

1. 0:00 Accrued Income Explained
2. 1:22 Double Entry for Accrued Income
3. 2:08 Accrued Income Worked Example
4. 3:49 Reversing Accrued Income Entries
5. 5:09 Prepaid Income Introduction
6. 6:45 Double Entry for Prepaid Income
7. 8:07 Prepaid Income Worked Example
8. 10:59 Financial Statement Impact
9. 11:46 Step-by-Step Procedure Summary

About this lesson

You'll master the double-entry bookkeeping for both scenarios, understand why the reversal process matters, and see how each adjustment affects your statement of profit and loss and statement of financial position. This is essential for Financial Reporting, Financial Accounting, and Strategic Business Reporting papers, where accurate income recognition directly impacts exam success. The lesson walks you through accrued income first—income you've earned but the cash hasn't arrived yet. Using practical examples like bank interest and rental payments received in arrears, you'll learn that accrued income is a current asset (debit accrued income, credit income). The key principle: recognise income in the period it relates to, not when cash lands in your bank. You'll then see how to reverse these entries in the following period and handle the cash receipt correctly. Next, you'll explore prepaid income—the opposite scenario where you've received cash in advance for services or rent you'll provide later. Here, prepaid income is a liability (debit income, credit prepaid income) because you owe the service. The lesson shows you step-by-step how to push income into future periods and why this matters for accurate financial reporting. You'll work through a detailed example with Lamia Limited to see how nine months of rent received upfront gets correctly deferred. By the end, you'll have a clear four-step procedure for handling all accrual and prepayment scenarios: reverse opening balances, complete period entries, record adjustments, and close accounts. This systematic approach works whether you're dealing with expenses or income, giving you confidence to tackle complex real-world situations in your exams.

Duration: 12m