What term describes the income that a company has earned but has not yet received in cash?

What term describes the income that a company has earned but has not yet received in cash?

• A. Deferred income
• B. Accrued income
• C. Recognized income
• D. Earned income

Answer: (B)

The term that describes the income a company has earned but has not yet received in cash is accrued income. This concept refers to revenue that is recognized in the accounting records before the cash is actually received. Under the accrual basis of accounting, earnings are recorded when they are realizable and earned, regardless of when the cash is exchanged. This means that if services have been provided or goods delivered, the company will recognize that income in the period it occurred, even if the payment hasn't been received yet. This principle ensures that the financial statements reflect the company’s true financial performance and position. In contrast, deferred income refers to money received in advance for services or products to be delivered in the future, recognized as a liability until the service or product is provided. Recognized income generally refers to income that has been officially logged in the accounting records, but does not specify whether or not the cash has been received. Earned income is similar to recognized income, indicating that the service has been completed or product delivered, but again doesn't directly address the cash receipt timing. Thus, accrued income is the most precise term for earnings not yet converted to cash at the time of the transaction.

The term that describes the income a company has earned but has not yet received in cash is accrued income. This concept refers to revenue that is recognized in the accounting records before the cash is actually received.

Under the accrual basis of accounting, earnings are recorded when they are realizable and earned, regardless of when the cash is exchanged. This means that if services have been provided or goods delivered, the company will recognize that income in the period it occurred, even if the payment hasn't been received yet. This principle ensures that the financial statements reflect the company’s true financial performance and position.

In contrast, deferred income refers to money received in advance for services or products to be delivered in the future, recognized as a liability until the service or product is provided. Recognized income generally refers to income that has been officially logged in the accounting records, but does not specify whether or not the cash has been received. Earned income is similar to recognized income, indicating that the service has been completed or product delivered, but again doesn't directly address the cash receipt timing. Thus, accrued income is the most precise term for earnings not yet converted to cash at the time of the transaction.