Yes, accrued income can be recognized as a contract asset under certain circumstances. A contract asset arises when an entity has performed its obligations under a contract but has not yet received or billed the customer for that performance. In other words, the entity has provided goods or services to the customer, but the right to invoice the customer has not yet been established.

In the context of accrued income, if an entity has provided goods or services as part of a contract and has a right to payment for those goods or services but has not yet billed the customer, the accrued income can be recognized as a contract asset.

However, it's essential to distinguish between contract assets and accounts receivable. A contract asset becomes an accounts receivable when the right to consideration becomes unconditional, typically after invoicing the customer. Once an entity has the right to invoice the customer, the accrued income will no longer be a contract asset and will be recognized as accounts receivable.

Remember to follow the accounting standards applicable in your jurisdiction, such as U.S. GAAP or IFRS, when recognizing contract assets and other revenue-related items.

Here is an example:

Let's say that a company enters into a contract with a customer to provide a service over a six-month period. The contract specifies that the customer will be billed monthly in arrears for the services provided in the previous month. At the end of the first month, the company has provided the service but has not yet invoiced the customer. As a result, the company recognizes an accrued income for the revenue earned but not yet invoiced.

In this scenario, the accrued income can be recognized as a contract asset because it represents revenue that the company has earned under the terms of the contract, but has not yet invoiced the customer. As the company continues to provide the service over the remaining five months of the contract, it will recognize additional contract assets for the revenue earned but not yet invoiced each month. At the end of the contract period, the company will have recognized all of the revenue earned under the contract as contract assets and will have invoiced the customer for the total amount due.

et's continue with the previous example.

Assume that the contract between the company and the customer specifies a monthly fee of $10,000 for the service provided. At the end of the first month, the company has provided the service and recognizes an accrued income of $10,000 for the revenue earned but not yet invoiced. The journal entry to record this transaction would be:

Debit: Accrued income - $10,000

Credit: Revenue - $10,000

At the end of the second month, the company has provided an additional month of service and recognizes another accrued income of $10,000. The journal entry to record this transaction would be:

Debit: Accrued income - $10,000

Credit: Revenue - $10,000

At this point, the company has recognized $20,000 in contract assets for the two months of service provided but not yet invoiced to the customer. The company will continue to recognize additional contract assets for the remaining four months of service provided.

At the end of the sixth month, the company has provided all six months of service and has recognized a total of $60,000 in contract assets for the revenue earned but not yet invoiced. The company will now invoice the customer for the total amount due:

Debit: Accounts receivable - $60,000

Credit: Revenue - $60,000

Once the invoice is paid, the company will have realized all of the revenue earned under the contract and will have recognized it as contract assets before invoicing the customer.

NOW, LETS LOOK INTO:SHOULD IT BE PRESENTED AS CONTRACT ASSET AND HOW?

Yes, the accrued income recognized as a contract asset should be presented separately on the balance sheet.

Under IFRS 15, contract assets should be presented separately from other assets on the balance sheet. Specifically, contract assets should be classified as either current or non-current, depending on whether they are expected to be collected within one year of the balance sheet date.

In the example we used earlier, if the six-month service contract begins on January 1, and the balance sheet date is June 30, the company would classify the $20,000 of contract assets recognized for the first two months of service as a current asset, since they are expected to be collected within one year of the balance sheet date. The $40,000 of contract assets recognized for the remaining four months of service would be classified as non-current, since they are not expected to be collected within one year of the balance sheet date.

The presentation of contract assets in the balance sheet should be disclosed in the notes to the financial statements, along with a description of the nature of the contract assets, and the amount and timing of revenue recognized in the income statement for each period.

Here's the PRESENTATION that includes the amount of the contract asset recognized:

Current Assets

• Cash and cash equivalents
• Accounts receivable
• Inventory
• Prepaid expenses
• Contract assets - current ($20,000)

Non-Current Assets

• Property, plant, and equipment
• Goodwill
• Intangible assets
• Investments
• Contract assets - non-current ($40,000)

In this example, the amount of the contract asset recognized for the first two months of service is $20,000, and this amount is included in parentheses next to the "Contract assets - current" line item. Similarly, the amount of the contract asset recognized for the remaining four months of service is $40,000, and this amount is included in parentheses next to the "Contract assets - non-current" line item.

Again, note that this is just an example and the actual presentation may vary based on the company's specific circumstances and accounting policies.