Accrued Rental Income at Year-End

Steps:

• Cash received in rental income account: $2750 (total credits for the year).
• Income recognized and transferred to income statement: $3000 (accrual basis amount).
• Difference: $3000 earned -$2750 received = $250 owed by tenants.
• Closing balance on account: $250 debit, representing unpaid earned income.

Why A is correct:

• Accrued income is revenue earned in the period but not yet received, per accrual accounting principle (IAS 18/IFRS 15), explaining the $250 excess recognition over cash.

Why the others are wrong:

• B: Accrued expense applies to liabilities for unpaid costs, not income.
• C: Prepaid expense is an asset for advance payments on costs, unrelated to income.
• D: Income received in advance occurs when cash exceeds earned amount, opposite of this $250 shortfall.

Final answer: A