At the end of the accounting period, there may be incomes which have become due but have not yet been received. If the organisation is following the mercantile system of accounting, these incomes are to be brought into the books of accounts.

• Credit - Income a/c

  Income a/c is a nominal account with a credit balance. The balance in the Income a/c generally indicates the total amount received on account of the income during the current accounting period.

  To bring the income that has not yet been brought into account into the books, the relevant income account has to be credited.

  Interest Received a/c ↓ income ↓ Nominal a/c ↓ Credit [Credit all Incomes and Gains]

• Debit - Income Receivable a/c

  The amount of income that has not yet been received is an asset for the organisation. The persons who owe the organisation are its debtors. As such, the amount of income outstanding that has not yet been taken into the books is debited to the Income Receivable a/c.

  Income Receivable a/c ↓ asset/debtor ↓ Personal a/c ↓ Debit [Debit the benefit receiver]

  Income Receivable a/c is a personal account with a debit balance. The balance indicates the amount that is owed to the organisation on account of income not yet received.
  Nominal accounts prefixed or suffixed with the terms outstanding, prepaid, pre received etc. are personal accounts.

Journal

Particulars
Income Receivable a/c To Income a/c	Dr
[For the amount of income receivable but not yet received brought in to books]

Illustration - Explanation

Trial Balance of M/s ___ as on 1^st July 20_5

Particulars	L/F	Amount (Dr)	Amount (Cr)
Income Receivable a/c	– –	– 6,800

Income a/c is not present in the opening trial balance. It being a nominal account is created anew in every accounting period. Even if assumed to be present on account of having been created in the current accounting period and the trial balance being drawn after having created the nominal accounts required, it has no balance.

Trial Balance of M/s ___ as on 1^st July 20_5

Particulars	L/F	Amount (Dr)	Amount (Cr)
Income Income Receivable	– – –	6,800	0

Following is the summary of the transactions relating to the income that have taken place during the current accounting period.

Cash to the extent of 1,02,000 has been received for interest during the current period which includes 5,200 towards previous periods dues. Interest is receivable @ 9,000 per month. The rest of the interest relating to the current period is still outstanding at the end of the accounting period and has not been brought into books.

Current period income	=	Monthly due × 12
	=	9,000 × 12
	=	1,08,000

Income received for current period	=	Total receipt − Receipts for previous dues
	=	1,02,000 − 5,200
	=	96,800

Current period due	=	Current period income − Current period receipt
	=	1,08,000 × 96,800
	=	11,200

The Income receivable can be handled in three different ways based on the information that the organisation intends to derive and maintain with regard to it.

• Income Receivable a/c giving information relating to income receivable available at all times.
• Income Receivable a/c available only for the purpose of final accounting.
• Income a/c itself provides the information relating to income receivable.

Income Receivable a/c is treated as a distinct asset and would provide the information relating to the receivable income all through out the accounting period.

Recording receivables

Receivables may be recorded at any time during the accounting period as and when the income is considered to become due and has not been received.

Journal

Date	Particulars		Amount (Dr)	Amount (Cr)
–	Income Receivable a/c To Income a/c	Dr	–	–
	[For the income receivable]

Recording receivables is dependent on the conventions followed in the organisations. Some record the receivables only towards the end of the accounting period. Some record them only if they stay receivable for a substantial period of time.

Some record them for every receivable immediately on the amounts falling due. Say for example many organisations record a due for some common incomes like interests on deposits and then receive them some time later, so that even if there is a slight delay in receipt that would be visible in the form of the Income Receivable a/c balance.

Receipts

Amounts may be received towards the current period income or for clearing the past dues. Amounts received towards the dues are considered to be receipts towards the asset (from debtors), Income Receivable.

Journal

Date	Particulars		Amount (Dr)	Amount (Cr)
–	Bank a/c To Income a/c	Dr	–	–
	[For the amount received towards the income]
–	Cash a/c To Income Receivable a/c	Dr	–	–
	[For the amount received towards the previous period dues.]

Income a/c

DrCr
Date	Particulars	Amount	Date	Particulars	Amount
30/06/_6	To balance c/d	96,800	– – –	By Cash By Income Receivable By Bank	– – –
		96,800			96,800
			30/06/_6	By Balance b/d	96,800

Income Receivable a/c

DrCr
Date	Particulars	Amount	Date	Particulars	Amount
01/07/_5	To Balance b/d To Income	6,800 –	– – 30/06/_6	By Cash By Bank By Balance c/d	– – 1,600
		–			–
01/07/_6	To balance b/d	1,600

Trial Balance of M/s ___ as on 30^th June 20_6

Particulars	L/F	Amount (Dr)	Amount (Cr)
Income Income Receivable	– –	1,600	96,800

Income Receivable at the end of the accounting period

• Accounting

  The income receivable for the current period not yet brought in has to be brought into the books of accounts.

  Journal

  Particulars		Amount (Dr)	Amount (Cr)
  Income Receivable a/c To Income a/c	Dr	11,200	11,200
  [For the amount income relating to the current period, not yet received brought in to the books.]

  Posting, rebalancing and closing the income account (assuming it to be indirect income)

  Income a/c

  DrCr
  Date	Particulars	Amount	Date	Particulars	Amount
  30/06/_6	To P/L a/c	1,08,000	30/06/_6 30/06/_6	By Balance b/d By Income Receivable	96,800 11,200
  		1,08,000			1,08,000

  Income Receivable a/c

  DrCr
  Date	Particulars	Amount	Date	Particulars	Amount
  30/06/_6 30/06/_6	To Balance b/d To Income	1,600 11,200	30/06/_6	By Balance c/d	12,800
  		12,800			12,800
  01/07/_6	To balance b/d	12,800

  Trading and Profit & Loss a/c

  DrCr
  Particulars	Amount	Particulars	Amount
  		By Income	1,08,000

  Balance Sheet of M/s ______ as on 30^th June 20_6

  Liabilities	Amount	Assets	Amount
  		Income Receivable	12,800

• Adjustment

  Working notes for adjustments

  Net Entry	Adjustment	Side	Where
  Dr. Income Receivable a/c Cr. Income a/c	1. (+/✔) to/as Income Receivable 2. (+/✔) to/as Income	Assets Credit	B/S Trdg or P/L

  Read as

  1. Add/Show to/as the relevant receivable income on the assets side of the balance sheet.
  2. Add to the relevant income on the credit side of the Trading a/c or the Profit and Loss a/c as the case may be.

  Trading and Profit & Loss a/c

  DrCr
  Particulars	Amount	Amount	Particulars	Amount	Amount
  			By Income (+) Unrecorded	96,200 11,800	1,08,000

  Balance Sheet of M/s ______ as on 30^th June 20_6

  Liabilities	Amount	Amount	Assets	Amount	Amount
  			Income Receivable (+) Unrecorded	1,600 11,200	12,800

Where the organisation does not intend to maintain the information relating to incomes receivable distinctly from the information relating to the current period incomes, the Income Receivable a/c is created at the end of the accounting period and is written off by transfer to the Income a/c at the beginning of the subsequent accounting period.

Trial Balance of M/s ___ as on 1^st July 20_5

Particulars	L/F	Amount (Dr)	Amount (Cr)
Income Income Receivable	– – –	– 6,800	0

Income Receivable a/c

DrCr
Date	Particulars	Amount	Date	Particulars	Amount
01/07/_5	To Balance b/d	6,800	01/07/_5	By Income a/c	6,800
		6,800			6,800

Recording receivables

No receivables are recorded during the course of the accounting period. At the end of the accounting period, the total receivable, whether it be for the current accounting period or the prior accounting periods is recorded as receivable income for the purpose of preparation of final accounts.

Receipts

The amounts received during the current period, whether towards the current period dues or the previous period dues are considered to be income received and Income a/c is considered to be the account that is affected on account of the receipt. Income Receivable a/c is not used within the accounting period.

Journal

Date	Particulars		Amount (Dr)	Amount (Cr)
–	Cash a/c To Income a/c	Dr	–	–
	[For the amount received towards the income]

Income a/c

DrCr
Date	Particulars	Amount	Date	Particulars	Amount
01/07/_5 30/06/_6	To Income Receivable To Balance c/d	6,800 95,200	– –	By Cash By Bank	– – –
			30/06/_6	By balance b/d	95,200

Trial Balance of M/s ___ as on 1^st July 20_5

Particulars	L/F	Amount (Dr)	Amount (Cr)
Income Income Receivable	– – –	– 0	95,200

The Income Receivable a/c does not carry any balance till the total receivable at the end of the current accounting period is recorded.

Income Receivable at the end of the accounting period

• Accounting

  The total income receivable at the end of the accounting period including the past dues has to be brought into the books of accounts.

  Journal

  Particulars		Amount (Dr)	Amount (Cr)
  Income Receivable a/c To Income a/c	Dr	12,800	12,800
  [For the total income receivable brought into books]

  Posting, rebalancing and closing the income account (assuming it to be indirect income)

  Income a/c

  DrCr
  Date	Particulars	Amount	Date	Particulars	Amount
  30/06/_6	To P/L a/c	1,08,000	30/06/_6 30/06/_6	By Balance b/d By Income Receivable	95,200 12,800
  		1,08,000			1,08,000

  Income Receivable a/c

  DrCr
  Date	Particulars	Amount	Date	Particulars	Amount
  01/07/_5 30/06/_6	To Balance b/d To Income	6,800 12,800	01/07/_5 30/06/_6	By Income By Balance c/d	6,800 12,800
  		19,600			19,600
  01/07/_6	To Balance b/d	12,800

  Trading and Profit & Loss a/c

  DrCr
  Particulars	Amount	Particulars	Amount
  		By Income	1,08,000

  Balance Sheet of M/s ______ as on 30^th June 20_6

  Liabilities	Amount	Assets	Amount
  		Income Receivable	12,800

• Adjustment

  Working notes for adjustments

  Net Entry	Adjustment	Side	Where
  Dr. Income Receivable a/c Cr. Income a/c	1. (+/✔) to/as Income Receivable 2. (+/✔) to/as Income	Assets Credit	B/S Trdg or P/L

  Read as

  1. Add/Show to/as the relevant income receivable on the assets side of the balance sheet.
  2. Add to the relevant income on the credit side of the Trading a/c or the Profit and Loss a/c as the case may be.

  Trading and Profit & Loss a/c

  DrCr
  Particulars	Amount	Amount	Particulars	Amount	Amount
  			By Income (+) Unrecorded	95,200 12,800	1,08,000

  Balance Sheet of M/s ______ as on 30^th June 20_6

  Liabilities	Amount	Amount	Assets	Amount	Amount
  			Income Receivable (+) Unrecorded	0 12,800	12,800

  The Income Receivable a/c is created at the beginning of the accounting period through the opening entry. The total opening balance is transferred to the relevant Income a/c thus making its balance zero. While showing the adjustment in the closing balance sheet we may consider the account to be in existence with a zero balance. Thus the outstanding brought into books at the end is shown as added to zero. This is not a requirement, though.

  Balance Sheet of M/s ______ as on 30^th June 20_6

  Liabilities	Amount	Amount	Assets	Amount	Amount
  			Income Receivable		12,800

Under this method, no Income Receivable a/c is present in the books of accounts. The income receivable is carried forward as a balance in the Income a/c itself, thereby treating the Income a/c as a personal account for the purpose of making up the balance sheet at the end of the accounting period. All other times and for all other purposes Income account is treated as a nominal account.

Trial Balance of M/s ___ as on 1^st July 20_5

Particulars	L/F	Amount (Dr)	Amount (Cr)
Income	– –	– 6,800

The Income a/c in the opening balance sheet represents a personal account. The opening debit balance in the account represents income receivable pertaining to the previous periods.

Income a/c

DrCr
Date	Particulars	Amount	Date	Particulars	Amount
01/07/_5 30/06/_6	To Balance b/d To P/L a/c	6,800 1,08,000	– – – 30/06/_6	By Cash By Bank – By Balance c/d (?)	– – – 12,800
		1,14,800			1,14,800
01/07/_6	To Balance b/d	12,800

Receivable raised

There is no receivable recorded either during the course of the accounting period or at the end of the accounting period.

At the end of the accounting period, the current period income is transferred to the Trading a/c or the Profit and Loss a/c as the case may be, leaving the income receivable as a debit balance in the account.

Receipts

All receipts during the current period are considered to have been for the income without making any distinction as to the current period income and prior period dues and Income a/c is considered to be the account that is affected on account of the receipt.

Current period income as balancing figure

A debit balance equal to the total amount receivable at the end of the accounting period, whether it be towards the current period income or prior period dues, is carried forward to the subsequent accounting period. The balancing figure after carrying forward the balance, would be the income credited to the Trading a/c or the Profit and Loss a/c as the case may be.

This approach is less practical as it requires us to pass the closing entry to create a support for the closing balance and that would be possible only after all the accounting is complete.

Trading and Profit & Loss a/c

DrCr
Particulars	Amount	Particulars	Amount
		By Income	1,08,000

Balance Sheet of M/s ______ as on 30^th June 20_6

Liabilities	Amount	Assets	Amount
		Income	12,800

This has the same effect as the method where Income Receivable a/c is maintained only for the purposes of the balance sheet. The only difference being that the Income a/c appears in place of Income Receivable a/c in the balance sheet.

Ledger accounts generally representing or understood as Nominal accounts appearing in the Balance sheet should be considered personal accounts. They would be an equivalent of a debtor if they appear on the assets side or a creditor if they appear on the liabilities side.

Income Receivable at the end of the accounting period

Once the current period income is transferred to the Trading a/c or the Profit and Loss a/c as the case may be, the income account would show a debit balance equal to the income receivable if at all there is any.

No entries need to be passed and no adjustments need to be made.

At the end of the accounting period, there may be incomes which are not yet due but have been received i.e. received in advance. If the organisation is following the mercantile system of accounting, these pre received incomes are to be carried over to the subsequent accounting periods to which they relate.

• Debit - Income a/c

  Income a/c is a nominal account with a credit balance. The balance in the Income a/c generally indicates the total amount received on account of the income during the current accounting period.

  The receipts towards the income indicated by the income account balance include pre received income. This pre received income has to be deducted from the income a/c balance to ascertain the actual income that can be considered for the current period.

  Income a/c shows a credit balance. Deducting from the Income a/c or reducing the Income a/c balance requires us to debit the Income a/c.

  Interest Received a/c ↓ income ↓ Nominal a/c ↓ Credit Debit [Credit all Incomes and Gains] Reverse

• Credit - Income Pre received a/c

  The pre received income is an amount that is owed by the organisation to the person or organisation from whom it has been received. The persons to whom the organisation owes are its creditors. As such, the amount of income pre received that has not yet been recorded in the books is credited to the Income Prereceived a/c.

  Prereceived Interest a/c ↓ Creditor/Liability ↓ Personal a/c ↓ Credit [Credit the benefit giver]

  Income Prereceived a/c is a personal account with a credit balance. The balance indicates the amount that is owed by the organisation.
  Nominal accounts prefixed or suffixed with the terms outstanding, prepaid, pre received etc. are personal accounts.

Journal

Particulars
Income a/c To Income Prereceived a/c	Dr
[For the amount of income pre received brought in to books]

Prereceived income is a liability to be absorbed as income and not realised

Prereceived Income a/c is a personal account and an equivalent of a debtor.

Income Receivable a/c is a personal account and an equivalent of a debtor. It is cleared by collecting the due indicated by the account. It is an asset liquidated by collection.

Prereceived Income a/c is not a liability that is cleared by paying out the due indicated by the account. It is used up or absorbed as income by transferring it to the relevant income account in the accounting period relevant to it.

Prereceived income is distinct from Advance

Prereceived income should be considered and understood as being distinct from Advances. The fundamental difference being, whereas advances may be repaid, Prereceived incomes are absorbed as income.

Illustration - Explanation

Trial Balance of M/s ___ as on 1^st July 20_5

Particulars	L/F	Amount (Dr)	Amount (Cr)
Prereceived Income a/c	– –	– 4,300 –

Income a/c is not present in the opening trial balance. It being a nominal account is created anew in every accounting period. Even if assumed to be present on account of having been created in the current accounting period and the trial balance being drawn after having created the nominal accounts required, it has no balance.

Trial Balance of M/s ___ as on 1^st July 20_5

Particulars	L/F	Amount (Dr)	Amount (Cr)
Income Income Prereceived	– – –	–	0 4,300

Following is the summary of the transactions relating to the income that have taken place during the current accounting period.

Cash received towards the income during the accounting period includes an amount of 2,800 pre-received which has not been adjusted for pre-receiveds by the end of the accounting period.

The pre-received income can be handled in three different ways based on the information that the organisation intends to derive and maintain with regard to it.

• Prereceived Income a/c giving information relating to pre-received income available at all times.
• Prereceived Income a/c available only for the purpose of final accounting.
• Income a/c itself provides the information relating to pre-received income.

Income Prereceived a/c is treated as a distinct liability and would provide the information relating to the pre-received income all through out the accounting period. Amounts from the Income pre-received a/c are absorbed as income by transfer to the Income a/c relevant to the accounting period for which the Income has been pre-received.

Thus the Income Prereceived a/c balance at the beginning of the accounting period, which represents the income pre-received during the prior accounting periods would get absorbed as income within a short time after the start of the accounting period, unless the Income Prereceived relates to a prereceipts that would relate to a time period far away.

Recording pre-receiveds

Prereceived incomes may be recorded at any time during the accounting period as and when the income is considered to have been pre-received.

They may be recorded directly as pre-received at the time of being received or by transfer from the income a/c if they have already been recorded as income at the time of receipt.

Journal

Date	Particulars		Amount (Dr)	Amount (Cr)
–	Cash a/c To Income Prereceived a/c	Dr	–	–
	[For the income pre-received]
–	Income a/c To Income Prereceived a/c	Dr	–	–
	[For the income pre-received earlier recorded as income]

Recording pre-receiveds is dependent on the conventions followed in the organisations. Some record the pre-receiveds only towards the end of the accounting period. Some record them only if they are pre-received before a substantial period of time.

Some record them for every pre-received immediately on the amounts being pre-received.

Absorption

Prereceived incomes are absorbed as income by transferring to the income account the amount that is to be treated as an income in the period when it is to be so treated.

Journal

Date	Particulars		Amount (Dr)	Amount (Cr)
–	Income Prereceived a/c To Income a/c	Dr	–	–
	[For the income becoming due and being adjusted by transfer from the pre-received income]

Income a/c

DrCr
Date	Particulars	Amount	Date	Particulars	Amount
30/06/_6	To balance c/d	82,000	– –	By Cash By Income Prereceived By Bank	– – – –
		82,000			82,000
			30/06/_6	By Balance b/d	82,000

Income Prereceived a/c

DrCr
Date	Particulars	Amount	Date	Particulars	Amount
– 30/06/_6	To Income To Balance c/d	3,500 – 1,800	01/07/_5 –	By Balance b/d By Cash	4,300 –
		–			–
			01/07/_6	By balance b/d	1,800

Trial Balance of M/s ___ as on 30^th June 20_6

Particulars	L/F	Amount (Dr)	Amount (Cr)
Income Income Prereceived	– –		82,000 1,800

Prereceived Incomes at the end of the accounting period

• Accounting

  The pre-received income at the end of the current accounting period which is not recorded as pre-received has to be brought into the books of accounts.

  Journal

  Particulars		Amount (Dr)	Amount (Cr)
  Income a/c To Income Prereceived a/c	Dr	2,800	2,800
  [For the amount income pre-received brought in to the books.]

  Posting, rebalancing and closing the expenditure account (assuming it to be indirect expenditure)

  Income a/c

  DrCr
  Date	Particulars	Amount	Date	Particulars	Amount
  30/06/_6 30/06/_6	To Income Prereceived To P/L a/c	2,800 79,200	30/06/_6	By Balance b/d	82,000
  		82,000			82,000

  Income Prereceived a/c

  DrCr
  Date	Particulars	Amount	Date	Particulars	Amount
  30/06/_6	By Balance c/d	4,600	30/06/_6	By Balance b/d By Income	1,800 2,800
  		4,600			4,600
  			01/07/_6	By Balance b/d	4,600

  Trading and Profit & Loss a/c

  DrCr
  Particulars	Amount	Particulars	Amount
  		By Income	79,200

  Balance Sheet of M/s ______ as on 30^th June 20_6

  Liabilities	Amount	Assets	Amount
  Income Prereceived	4,600

• Adjustment

  Working notes for adjustments

  Net Entry	Adjustment	Side	Where
  Dr. Income a/c Cr. Income Prereceived a/c	1. (−) from Income 2. (+/✔) to/as Prereceived Income	Credit Liabilities	Trdg or P/L B/S

  Read as

  1. Deduct from the relevant expenditure on the credit side of the Trading a/c or the Profit and Loss a/c as the case may be.
  2. Add/Show to/as the relevant pre-received income on the liabilities side of the balance sheet.

  Trading and Profit & Loss a/c

  DrCr
  Particulars	Amount	Amount	Particulars	Amount	Amount
  			By Income (−) Prereceived	82,000 2,800	79,200

  Balance Sheet of M/s ______ as on 30^th June 20_6

  Liabilities	Amount	Amount	Assets	Amount	Amount
  Income Prereceived (+) Unrecorded	1,800 2,800	4,600

Where the organisation does not intend to maintain the information relating to pre-received incomes distinctly from the information relating to the current period incomes, the Income Prereceived a/c is created at the end of the accounting period and is written off by transfer to the Income a/c at the beginning of the subsequent accounting period.

Trial Balance of M/s ___ as on 1^st July 20_5

Particulars	L/F	Amount (Dr)	Amount (Cr)
Income Income Prereceived	– – –		– 0 4,300

Income Prereceived a/c

DrCr
Date	Particulars	Amount	Date	Particulars	Amount
01/07/_5	To Income a/c	4,300	01/07/_5	By Balance b/d	4,300
		4,300			4,300

Recording Prereceipts

No prereceipts are recorded during the course of the accounting period. At the end of the accounting period, the total prereceipts which are not yet absorbed as income, whether they have been made during the current accounting period or the prior accounting periods are recorded as pre-received income for the purpose of preparation of final accounts.

Consumption/Absorption

The amounts received during the current period, whether towards the current period dues or as prereceipts are considered to be income received and Income a/c is considered to be the account that is affected on account of the payment. Income Prereceived a/c is not used within the accounting period.

Journal

Date	Particulars		Amount (Dr)	Amount (Cr)
–	Bank a/c To Income a/c	Dr	–	–
	[For the amount received towards the income]

Income a/c

DrCr
Date	Particulars	Amount	Date	Particulars	Amount
30/06/_6	To Balance c/d	83,800	01/07/_5 – –	By Income Prereceived By Cash By Bank	4,300 – –
		83,800			83,800
			30/06/_6	By balance b/d	83,800

Trial Balance of M/s ___ as on 1^st July 20_5

Particulars	L/F	Amount (Dr)	Amount (Cr)
Income Income Prereceived	– – –		– 83,800 0

The Income Prereceived a/c does not carry any balance till the total pre-received at the end of the current accounting period is recorded.

Prereceived Incomes at the end of the accounting period

• Accounting

  The total pre-received income at the end of the accounting period including the past pre-receiveds which have not yet been absorbed as income have to be brought into the books of accounts.

  Journal

  Particulars		Amount (Dr)	Amount (Cr)
  Income a/c To Income Prereceived a/c	Dr	4,600	4,600
  [For the total pre-received income brought into books]

  Posting, rebalancing and closing the income account (assuming it to be indirect income)

  Income a/c

  DrCr
  Date	Particulars	Amount	Date	Particulars	Amount
  30/06/_6	To Income Prereceived To P/L a/c	4,600 79,200	30/06/_6	By Balance b/d	83,800
  		83,800			83,800

  Income Prereceived a/c

  DrCr
  Date	Particulars	Amount	Date	Particulars	Amount
  01/07/_5 30/06/_6	To Income To Balance c/d	4,300 4,600	01/07/_5 30/06/_6	By Balance b/d By Income	4,300 4,600
  		8,900			8,900
  			01/07/_6	By Balance b/d	8,900

  Trading and Profit & Loss a/c

  DrCr
  Particulars	Amount	Particulars	Amount
  		By Income	79,200

  Balance Sheet of M/s ______ as on 30^th June 20_6

  Liabilities	Amount	Assets	Amount
  Income Prereceived	4,600

• Adjustment

  Working notes for adjustments

  Net Entry	Adjustment	Side	Where
  Dr. Income a/c Cr. Income Prereceived a/c	2. (−) from Income 1. (+/✔) to/as Income Prereceived	Credit Liability	Trdg or P/L B/S

  Read as

  1. Deduct from the relevant income on the credit side of the Trading a/c or the Profit and Loss a/c as the case may be.
  2. Add/Show to/as the relevant pre-received income on the liabilities side of the balance sheet.

  Trading and Profit & Loss a/c

  DrCr
  Particulars	Amount	Amount	Particulars	Amount	Amount
  			By Income (−) Total Prereceived	83,800 4,600	79,200

  Balance Sheet of M/s ______ as on 30^th June 20_6

  Liabilities	Amount	Amount	Assets	Amount	Amount
  Income Prereceived (+) Unrecorded	0 4,600	4,600

  The Income Prereceived a/c is created at the beginning of the accounting period through the opening entry. The total opening balance is transferred to the relevant Income a/c thus making its balance zero. While showing the adjustment in the closing balance sheet we may consider the account to be in existence with a zero balance. Thus the pre-received brought into books at the end is shown as added to zero. This is not a requirement, though.

  Balance Sheet of M/s ______ as on 30^th June 20_6

  Liabilities	Amount	Amount	Assets	Amount	Amount
  Income Prereceived		4,600

Under this method, no Income Prereceived a/c is present in the books of accounts. The pre-received income is carried forward as a balance in the Income a/c itself, thereby treating the Income a/c as a personal account for the purpose of making up the balance sheet at the end of the accounting period. All other times and for all other purposes Income account is treated as a nominal account.

Trial Balance of M/s ___ as on 1^st July 20_5

Particulars	L/F	Amount (Dr)	Amount (Cr)
– –	4,300	Income	– –

The Income a/c in the opening balance sheet represents a personal account. The opening credit balance in the account represents income pre-received during the prior accounting periods and which has not yet been absorbed as income.

Income a/c

DrCr
Date	Particulars	Amount	Date	Particulars	Amount
30/06/_6	To P/L a/c To Balance c/d (?)	79,200 4,600	01/07/_5 – –	By Balance b/d By Cash By Bank	4,300 – –
		83,800			83,800
01/07/_6	To Balance b/d	8,500

Prereceipts recorded

There is no prereceipt recorded either during the course of the accounting period or at the end of the accounting period.

At the end of the accounting period, the current period income is transferred to the Trading a/c or the Profit and Loss a/c as the case may be, leaving the pre-received income as a credit balance in the account.

Receipts

All receipts during the current period are considered to have been received for the income without making any distinction as to the current period dues and prereceipts and Income a/c is considered to be the account that is affected on account of the receipt.

Income as balancing figure

A credit balance equal to the total amount pre-received at the end of the accounting period, whether it be towards the current period dues or prereceipts, is carried forward to the subsequent accounting period. The balancing figure after carrying forward the balance, would be the current period income taken to the Trading a/c or the Profit and Loss a/c as the case may be.

This approach is less practical as it requires us to pass the closing entry to create a support for the closing balance and that would be possible only after all the accounting is complete.

Trading and Profit & Loss a/c

DrCr
Particulars	Amount	Particulars	Amount
		By Income	79,200

Balance Sheet of M/s ______ as on 30^th June 20_6

Liabilities	Amount	Assets	Amount
Income	4,600

This has the same effect as the method where Prereceived Income a/c is maintained only for the purposes of the balance sheet. The only difference being that the Income a/c appears in place of Prereceived Income a/c in the balance sheet.

Ledger accounts generally representing or understood as Nominal accounts appearing in the Balance sheet should be considered personal accounts. They would be an equivalent of a debtor if they appear on the assets side or a creditor if they appear on the liabilities side.

Prereceived Incomes at the end of the accounting period

Once the current period income is transferred to the Trading a/c or the Profit and Loss a/c as the case may be, the income account would show a credit balance equal to the pre-received income if at all there is any.

No entries need to be passed and no adjustments need to be made.

Theoretically it is possible to make Income a/c represent both Income receivable and Income pre-received.

Income a/c at the end of the accounting period would hold both a credit balance representing Income Prereceived as well as a debit balance representing Income Receivable. This is achieved by including the Income a/c in both the assets (to represent Income Receivable) and liabilities (to represent Income Prereceived) with the relevant amounts in the closing entry.

Journal [Year end 30/06/_6]

Particulars		Amount (Dr)	Amount (Cr)
Creditors a/c Capital a/c – Income a/c – To Motor Car a/c To Machinery a/c – To Income a/c –	Dr Dr Dr Dr Dr	– – – 4,600 –	– – – 12,800 –
[For the balances carried forward to the next accounting period]

Closing entry is the Journal entry that supports the postings representing balances carried forward at the end of the accounting period. Liabilities are debited and assets are credited. Thus, Expenditure debited would represent the liability Income Prereceived and Expenditure credited would represent the asset Income Receivable.

Income a/c

DrCr
Date	Particulars	Amount	Date	Particulars	Amount
01/07/_5 – – 30/06/_6	To Balance b/d To P/L a/c (?) To Balance c/d	6,800 79,200 4,600	01/07/_5 – –	By Balance b/d By Cash By Bank By Balance c/d	4,300 – – 12,800
		90,600			90,600
01/07/_6	To Balance b/d	12,800	01/07/_6	By Balance b/d	4,600

At the beginning of the accounting period

At the beginning of the accounting period, the Income a/c shows both a debit balance and a credit balance. The journal entry that supports the postings representing opening balances brought down is the Opening entry.

Journal [Year beginning 01/07/_5]

Particulars		Amount (Dr)	Amount (Cr)
Motor Car a/c Machinery a/c – Income a/c – To Creditors a/c To Capital a/c – To Income a/c –	Dr Dr Dr Dr Dr	– – – 6,800 –	– – – 4,300 –
[For the balances brought forward from the previous accounting period]

Opening entry is the Journal entry that supports the postings representing balances brought forward at the beginning of the accounting period. Assets are debited and liabilities are credited. Thus, Expenditure debited would represent the asset Income Receivable and Expenditure credited would represent the liability Income Prereceived.

Income a/c

DrCr
Date	Particulars	Amount	Date	Particulars	Amount
01/07/_5	To Balance b/d	6,800	01/07/_5	By Balance b/d	4,300

The problem

Closing entry is so called as it is generally recorded as the last entry at the end of the accounting period. The ledger account balances used in the closing entry are the ones after completing final accounts and making all adjustments at the end of the accounting period. Normally it is no more accounting relating to the current period after recording the closing entry.

To complete final accounting we need the Income a/c balance that is to be absorbed as income by crediting it to the Trading a/c or the Profit and Loss a/c as the case may be. The Income a/c balance that is absorbed as income is obtained as the balancing figure in the Income a/c, by posting both the debit and credit carry forward balances. These postings being supported by the closing entry require the closing entry to have been completed.

Unless the closing entry has been recorded, the Income a/c cannot get posted with the closing balances. Unless the closing balances are posted and income ascertained, all the information required for recording the closing entry will not be available. One is dependent on the other making this method impossible.

However, a provisional closing entry may be recorded with the existing information including the debit and credit balances to be carried forward in the income a/c to be able to use this method.