SingaporeAccountingSyllabus dot point

How do we adjust an income account for amounts earned but not received, or received in advance, at the year end?

Adjust income accounts for accrued and prepaid income and show them in the financial statements

A focused answer to the O-Level Principles of Accounts outcome on accrued and prepaid income. Adjusting an income account such as rent received, the closing balances as an asset or liability, and the financial statement figures.

Generated by Claude Opus 4.88 min answerUpdated 2026-06-06

Reviewed by: AI editorial process; not yet individually human-reviewed

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What this dot point is asking
The answer
Examples in context
Try this

What this dot point is asking

SEAB wants you to adjust an income account (such as rent received or commission received) for accrued income (earned but not received) and income received in advance (prepaid income), and to present them correctly. The central insight mirrors expenses but in reverse: the income statement shows the income earned in the year, while the statement of financial position shows amounts owed to the business as an asset, or amounts received in advance as a liability.

The answer

Accrued income

Accrued income is income earned but not yet received at the year end (for example, rent due from a tenant that has not arrived). It belongs to this year:

Add it to the income credited to the income statement.
Show it as a current asset (a receivable) in the statement of financial position.

Income received in advance

Income received in advance (prepaid income) is income received but not yet earned (for example, a tenant who has paid next year's rent early). It does not belong to this year:

Remove it from this year's income.
Show it as a current liability (an obligation) in the statement of financial position.

The income earned in the year

A formula, the mirror of the expense one:

\text{Income for the year} = \text{Cash received} + \text{Closing accrued income} - \text{Opening accrued income} - \text{Closing income in advance} + \text{Opening income in advance}

In words: start from cash received, add what is still owed to the business at the end, and subtract amounts received in advance that are not yet earned.

Working through the income account

The income account is balanced so the transfer to the income statement is the balancing figure on the debit side (because income is a credit balance). Accrued income is a debit balance c/d (an asset); income received in advance is a credit balance c/d (a liability).

Worked example

A business earns commission. During the year to 31 December it received $\$ 12,000 $of commission. At 1 January,$ \ $500$ was accrued (owed to the business from last year); at 31 December, $\$ 700$ of commission was received in advance for next year. Prepare the commission received account and state the financial statement figures.

Step 1: Enter the cash received and the opening accrued income

The $\$ 12,000 $received is a credit. The opening accrued income of$ \ $500$ is a debit balance brought down (an asset from last year, now received).

Step 2: Enter the closing income in advance

The $\$ 700$ received in advance is a credit balance carried down (a liability for next year).

Step 3: Find the transfer to the income statement

| Commission received | $\

| | $\

|
| --- | --- | --- | --- |
| Balance b/d (accrued) | 500 | Bank | 12,000 |
| Balance c/d (in advance) | 700 | | |
| Income statement | 10,800 | | |
| | 12,000 | | 12,000 |
| | | Balance b/d (in advance) | 700 |

The balancing figure (income statement) is $\$ 10,800$.

Step 4: Check with the formula

Income $= 12\,000 - 500 \text{ (opening accrued now received)} - 700 \text{ (received in advance)} = \$ 10,800 $. The$ \ $700$ received in advance is a current liability in the statement of financial position.

Examples in context

Example 1. Rent owed by a tenant. A landlord business is owed $\$ 800 $of rent at the year end that the tenant pays in January. The$ \ $800$ is added to rent received this year (it was earned this year) and shown as a current asset. Matching recognises the income in the period the premises were used, not when the cash later arrives.

Example 2. A deposit for next year's service. A driving school receives $\$ 1,200 $in December for lessons to be given next year. None is earned this year, so it is removed from this year's income and shown as a$ \ $1,200$ current liability (income received in advance). The income will be recognised next year as the lessons are delivered.

Try this

Q1. State how accrued income and income received in advance each appear in the statement of financial position. [2 marks]

Cue. Accrued income is a current asset; income received in advance is a current liability.

Q2. Rent received is $\$ 7,000 $;$ \ $600$ is still owed to the business at year end (accrued), with no opening balance. State the income statement figure. [2 marks]

Cue. Income $= 7\,000 + 600 = \$ 7,600 $, with the$ \ $600$ accrued income shown as a current asset.

Q3. Explain why income received in advance is not recognised as income this year. [2 marks]

Cue. Under matching, income is recognised when earned; the amount received in advance is not yet earned, so it is deferred and shown as a liability.

Exam-style practice questions

Practice questions written in the style of SEAB exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.

Original7 marksA business sublets part of its premises. During the year to 31 December it received

\

9\,000

rent. At 31 December,

1\,000

of rent had been earned but not yet received (accrued income). There was no opening balance. (a) Prepare the rent received account. (b) State the income statement figure and how the accrued income appears in the statement of financial position.

Show worked answer →

(a)

| Rent received | $\

| | $\

|
| --- | --- | --- | --- |
| Income statement | 10,000 | Bank | 9,000 |
| | | Balance c/d (accrued) | 1,000 |
| | 10,000 | | 10,000 |
| Balance b/d (accrued) | 1,000 | | |

(b) Rent received credited to the income statement $= \$ 10,000 $(cash$ \ $9\,000$ plus $\$ 1,000 $earned but not received). The accrued income of$ \ $1\,000$ is a current asset (a receivable) in the statement of financial position.

Markers reward the rent received account with the closing accrued income, the $\$ 10,000 $income figure, and the$ \ $1\,000$ accrued income as a current asset.

Original5 marksCommission received during the year was

\

6\,000

. At 31 December,

800

of this related to next year (received in advance). (a) State the commission income for the year. (b) Explain how the

\

800$ appears in the financial statements and why.

Show worked answer →

(a) Commission income for the year $= 6\,000 - 800 = \$ 5,200 $. Only the amount **earned** this year is income; the$ \ $800$ received in advance has not yet been earned.

(b) The $\$ 800$ received in advance is a current liability in the statement of financial position. It is an obligation: the business has been paid for a service it has not yet provided, so it owes that service (or a refund) next year. Under the matching principle, the income is deferred to the year it is earned.

Markers reward $\$ 5,200 $as the income, the$ \ $800$ shown as a current liability, and the explanation that income received in advance is an obligation deferred to next year.