Date Particulars Dr. Amount Cr. Amount Rs RS 1,000 1,000 1998 DE Prepaid Insurance Ac To Insurance Ale (Being Insurance premium paid in advance) Prepaid Rent Ac To Rent Ac (Being rent paid in advance) Dr. 500 500 149 149 Amount Rs Particulars To Insurance Less: Prepaid To Rent Less: Prepaid PROFIT AND LOSS ACCOUNT us on 31st December, 1998 Amount Rs Particulars 8,000 1.000 7.000 4,000 500 3.500 BALANCE SHEET as on 31st December, 1998 Amount Rs Assets Prepaid Insurance Prepaid Rent Liabilities Amount Rs 1,000 500 Outstanding Income Outstanding Income means income which has become due during the accounting year but which has not so far been received by the firm. In order to ascertain the true profit or loss, adjustments for such income must be made in the Final Accounts of the business. The following journal entry will be passed: Outstanding Income Ac Dr. To Income Alc Accrued income. Accrued income means income which has been earned by the business during the accounting year but which has not yet become due and therefore, has not been received. Adjusting entry of such income is also on the pattern of outstanding income as shown below: Accrued Income Alc Dr. To Income Alc A distinction has to be made between accrued income and outstanding income. Though, both the incomes have been earned by the business and not yet received but in case of accrued income, the income has not become due to the business while outstanding income is an income which has become due to the business. For example, if a loan of Rs 10,000 has been given @ 12% p.a. and interest is payable monthly, if interest for one month, i.e., Rs 100 has not been received by the business, the income will be termed as an Outstanding Income since interest has become due but it has not yet been received by the business. However, in case of these securities where interest is payable on definite dates, interest may have been earned by the business, but it will become due not earlier than the definite date. For example, if a business has purchased 6% Government Securities of Rs 10,000 on which interest is payable on 31st March and 30th September, for the accounting year ending on 31st December interest for 3 months (i.e., Rs 150 for October, November and December) will be taken as accrued interest and not an outstanding interest. This is because interest will become due after 30th September, only on 31st March and not earlier. Illustration 6.13. Following are the extracts from the Trial Balance of a firm on 31st December, 1998. Particulars Dr. Amount Cr. Amount RS 6% Loan 20,000 Investments in 6% Debentures of 'B' Ltd. 30,000 (Interest payable on 31st March and 30th Sept.) Interest on loan received upto 31st October, 1998 1.000 Interest on Investments RS 900