In financial accounting Financial Accounting Theory Financial Accounting Theory explains the why behind accounting - the reasons why transactions are reported in certain ways. Accounting Equation â Accrued Income. Relevance and Uses of Accrued Interest Formula. Since the income statement is usually prepared under the accrual method of accounting, the statement of cash flows provides information on the amounts of cash flowing in and out of the business. In this lesson we're going to see what happens to our accounting equation and which accounts are affected when we collect from this debtor (also known as accounts receivable). Accrued Interest formula calculates the interest amount which is earned or which is payable on the debt over one accounting period but the same is not received or paid in the same accounting period and it is calculated by multiplying the principal amount with rate of interest and number of days for which debt is given or taken and then dividing it with total number of days in a year. It is treated as an asset for the business. The accounting entry to record accrued income will therefore be as follows: Debit. The final accounting equation would be: Assets $88,100 (Cash $66,800 + Accounts Receivable $5,000 + Supplies $500 + Prepaid Rent $1,800 + Equipment $5,500 + Truck $8,500) = Liabilities $200 + Equity $87, 900 (Common Stock $30,000 + Net Income $57,900 from revenue of $60,000 â salary expense $900 â utility expense $1,200). Accounting Equation Formula ⦠Treatment in Balance Sheet: Accrued income is the assets of the company and shown on the assets side of the Balance Sheet because this is a debt due from a party of the business. Also known as outstanding income, accrued income is the income which has been earned during a particular accounting period, however, the related funds have not been received until the end of that accounting period.S o, it grows by addition and remains due to be received in the forthcoming accounting periods.. The accrued income is added to the relevant head of income on the credit side of the income statement to increase the amount of income for the current year. This is true at any time and applies to each transaction. Income Receivable (Balance Sheet) Credit. Some investors will compare the cash from operating activities to the amount of net income in order to assess the âqualityâ of a companyâs earnings. Income (Income Statement) Example. The use of Accrued interest is based on Accrual Accounting. ABC LTD has an accounting year end of 31st December 2010. What is Accrual Accounting? It is income earned during a particular accounting period but not received until the end of that period. The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the equity of the business. Examples include accrued interest on investment, accrued rent to ⦠Using an accounting equation formula, we can find out the value of any of the missing variable value if we have other two. This guide will, accruals refer to the recording of revenues Sales Revenue Sales revenue is the income received by a company from its sales of goods or the provision of services. Accrued Interest = Bond Face Value * Time of the Accrued Interest * Proper Interest Rate. 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