i will be grateful if someone can guide me the correct accounting treatment for unrealised interest earned for fixed deposit.
for example, if the principal is £1,000.00 and its interest earned will be £120.00 per annum. how should i book the entry when the fixed deposit is placed on 01.01.2005?
i understand that the treatment for deposit on 01.01.2005 is
Dr. Deposit (B/S)
Cr. Cash at bank
So, how about unrealised interest on 01.01.2005?
Then every end of the month, i think i should pass:
Dr. FD Interest (B/S) for £10.00
Cr. Interest Income (P&L) £10.00
Upon maturity and money received, i will
Dr. Cash at bank (principal + interest earned)
Cr. FD interest (B/S)
Cr. Deposit
would anyone please enlighten me what should i do for unrealised interest earned on 01.01.2005.
thank you
ken
Replies (2)
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Entries for FD A/C
(A) When you deposit an amt as FD :
Dr. Fixed Deposit A/C (Other Debtors)
Cr. Bank
(B) Accruing for interest :
Cr FD Interest Receivable 120.00 (Oth Creditors)
Dr AAA Bank (Oth Debtors)
(C) ......about unrealised interest on 01.01.2005?
Pass flwg entries monthly :
Dr. FD Interest Recble (Oth Debtors) £10.00
Cr. Interest Income (P&L) £10.00
(D) Upon maturity and money received, i will
Dr. Bank (principal + interest earned)
Cr. AAA Bank 120.00
Cr. Fixed Deposit 1000 + 120
NOTE :
1) If your co primary business is investing, then the Interest Income is replaced with Turnover (like Sales in Trading concern)
2) If the interest is Immaterial, you might as well don't create so many A/Cs - just do (A) above and when matured do (D) above. But if the amts are very big, do (A) to (D) to adhere to the Cost/Rev matching concept.
3) The above is based on the On-going concept that you are not unlikely to experience a bank going down-under or invest in Parmalat or Enrons.
HDFC Bank - corporate the fixed deposit
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