Understanding Accrued Income: Definition & Examples

Accrued income is income a business has earned but not yet actually received. This is common in the business world when using accrual accounting. Many mutual funds also use this type of business model.

A business may be scheduled to earn a certain amount of money from a customer. The business is providing a service over the long term for the other company. However, the money that is being earned will not be paid by the customer until the end of the contract. Instead of reporting all of the earnings at the end of the contract, the business can instead report a certain percentage of the income for each month or quarter. This allows the business to spread out the income and make it appear as if it has more cash flow.

Mutual funds often use this method when it comes to dealing with investors. The mutual fund is constantly earning money through trades and capital appreciation and from dividends. However, they do not pay out this money all at once to the investors of the fund. In most cases, they pay out only once a year, and in some cases, only every quarter.