Are you looking for detailed guide to record the outstanding income Journal Entry?
Then, you landed on one of the best blogs.
Outstanding income is the money earned but not realized to business.
In other words, it is money that is due to the business.
Estimated reading time: 5 minutes
Table of contents
- How about an Outstanding Income Journal entry example?
- How To Record Outstanding Income Journal Entry?
- Best Practices to Manage Outstanding Income.
- Creating a Clear Communication Process.
- Utilizing a Follow-Up System
- Outstanding Income Journal Entry FAQs
How about an Outstanding Income Journal entry example?
Perhaps you have invoiced a client but they have not yet paid you. Or maybe you have performed services but have not yet billed the client. Irrespective of the scenario, it is important to know how to properly account for outstanding income.
The first step is to establish a journal entry system, which helps in keeping track of all the receivables. Next, you will need to record the outstanding income in your journal. Finally, we need to record it by posting the journal entry to Ledger account.
Once you have done all of this, it is important to establish some best practices to manage your outstanding income. This includes setting up a reconciliation process, creating a clear communication process, and utilizing a follow-up system. These steps help to proper recording of outstanding income.
Also read: Unearned Fees Entry
How To Record Outstanding Income Journal Entry?
Outstanding income is income earned but not realized. Recording an outstanding income journal entry is essential to ensure accurate financial reporting. Here are the steps to record an outstanding income journal entry:
1. Identify the source of the outstanding income. The source could include rental income, interest, or services rendered.
2. The next step is to post the entry to record this transaction by understanding the GL accounts involved here. The journal entry should include a debit to an asset account (such as “Rent Receivable”) and a credit to a revenue account (such as “Equipment Rental Income”).
3. Post the journal entry to the ledger.
Note: We need not separately post the journal entry to the ledgers. Thanks to the accounting ERP systems. We just need to record only the journal entry. Steps like Posting to Ledger, Preparing Trial balances, Balance sheet and Cash Flow Statements are no more manual activities. Accounting software does all these for us.
4. Make sure to include the amount of Rent Receivable in the balance sheet as part of total current assets. Said differently, we need to group the receivable GL under Current Assets Category in the accounting software.
5. Finally, include the amount of Rental Income (Accrual) in your financial statements as earned revenue for that accounting period.
Following the above steps helps to ensure that accounting records accurately reflect all outstanding income earned during a particular accounting period.
Best Practices to Manage Outstanding Income.
Outstanding income can be a tricky thing to manage. To ensure that your organization is keeping track of all outstanding income, it’s important to establish a reconciliation process. This process should compare the total amount of outstanding income reported in the books to the actual amount of money owed. We need to investigate and resolve the discrepancies, if any.
Creating a Clear Communication Process.
It’s crucial to have a transparent communication structure in place in order to manage outstanding income correctly. All parties involved in reporting and collecting outstanding income should be aware of their respective roles and responsibilities. Also, providing frequent updates regarding the status of outstanding invoices is helpful.
We can use Excel Trackers and assign an expense category for each accounting team members. We can have the Trackers in a common accessible path like MS Teams, Google Docs.
Schedule weekly meetings to evaluate the status of the recovery for all the earned outstanding income. This is a best way to keep track of them.
Utilizing a Follow-Up System
Upon issuance of invoice, we need to follow up with the customer to ensure the receipt of timely payments. If there is a delay in payment, then entities need to take proper steps to collect the outstanding amount. This may include sending reminders or placing phone calls.
Outstanding Income Journal Entry FAQs
What is an Outstanding Income Journal Entry?
An Outstanding Income Journal Entry is an accounting entry used to record income that has been earned but not yet received by the company during a particular accounting period. This type of entry is typically used to adjust the balance sheet for the current period’s income, and it should be recorded in accordance with Generally Accepted Accounting Principles (GAAP).
How is an Outstanding Income Journal Entry Recorded?
An Outstanding Income Journal Entry is recorded as a debit to the Accrued Income Account and a credit to the appropriate revenue account on the company’s books. This will ensure proper accounting of the income, which the entity earns during the period.
What are some examples of Outstanding Income?
Examples of outstanding income include accrued rent, interest income, and revenue earned from providing services but not yet received.
What should I consider when recording an Outstanding Income Journal Entry?
When recording an Outstanding Income Journal Entry, it is important to ensure that it conforms to GAAP and that all transactions are properly documented in accordance with company policies and procedures
What is the impact of recording Outstanding Income in the financial statements?
Recording Outstanding Income in the financial statements will increase both current assets on the balance sheet and earned revenue on the income statement, thus improving the overall financial position of the company for the given period.
The above steps are a guide on how to accounting for outstanding income. We can define Outstanding income as money that is due to a company but has not yet been received. To record outstanding income, establish a journal entry system, reconcile regularly, and follow up with customers in a timely manner.
I hope this article has been helpful for you in understanding the concept of an Outstanding Income Journal Entry.