The income that is received in business does not have a specific setting. There is certain income that comes unannounced or even before their expected date of arrival.
When certain incomes that actually are to come the next year, come in a particular year, it is said to be unearned income. This is so because, that particular income has not been earned in that year, but is to be taken into consideration.
While placing it in the profit and loss account, it would be deducted from concerned income and shown as liability.
Presentation in Final Accounts:
If unearned income appears in adjustment area:
In case of adjustment as per rules, unearned income is to be placed in 2 places. The amount that is unearned is deducted from rent that is placed on credit side of profit and loss account. However, this is also depicted on the liabilities side.
Since the account where rent has been received is debited, so it will reduce that rental amount which is received on credit side of profit and loss account.
If unearned income appears in Trial Balance:
Since as per rules, it is to be shown only on a singular side, in this case, the liabilities side. This shows that credit balance and amount received in advance has to be paid over an extended period of present year continuing up to the next year.
Links of Previous Main Topic:-
- Adjustments additional information in preparation of final accounts
- Depreciation in the value of assets
- Appreciation in the value of assets
- Outstanding expenses
- Prepaid expenses
- Accrued or outstanding expenses
Links of Next Accounting Topics:-
- Interest on capital
- Interest on drawings
- Interest and dividend on investment
- Interest on loan
- Bad debts not in adjustment
- Provision for bad and doubtful debt adjustment
- Further bad debts adjustment
- Provision for bad and doubtful debts given in the trial balance
- Provision for discount on debtors
- Closing stock
- Summarized presentation of adjustments
- Theoretical questions final account