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CMA Foundation · Fundamentals of Financial and Cost Accounting · Adjustment Entries and Rectification of Errors

Accrued interest on investments of Rs 4,500 is receivable at the year end but not yet recorded. How should it be treated in the final accounts?

Accrued interest of Rs 4,500 is income earned in the current year but not yet received. It is added to interest income in the Profit and Loss Account and shown as accrued income, a current asset, in the Balance Sheet.

  1. AAdded to interest income in the Profit and Loss Account and shown as a current assetCorrect
  2. BDeducted from interest income and shown as a liability
  3. CIgnored until the cash is actually received
  4. DShown only as a liability in the Balance Sheet

Explanation

Income earned but not yet received belongs to the current year. It is credited to interest income and shown as accrued income, an asset, in the Balance Sheet. Ignoring it follows the cash basis, which is not appropriate here.

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