Tennessee Business and Law Practice Exam

The concept of "accrued income" refers specifically to income that has been earned but not yet received in cash. In accounting terms, this falls under the accrual basis of accounting, where revenue is recognized when it is earned, regardless of when payment is actually received.

For example, if a service provider completes a job and sends an invoice but has not yet received payment, that income is still considered accrued because the service has been rendered and the right to receive payment exists. This recognition helps provide a more accurate picture of a business’s financial health and performance during a specific period.

This contrasts sharply with cash income, which is recognized only when payment is received, and it highlights the crucial distinction between earned income and cash flow. Understanding accrued income is vital for financial reporting and tax purposes, as it ensures that financial statements reflect all income earned during an accounting period, even if cash collection takes longer.