How to Record Interest Earned in Accounting

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Bookeepers must record all financial transactions that relate to the business's earnings and expenditures. Most transactions are recorded by posting receipts, checks, deposits and other source documents. When interest is earned on a business account, no receipt or deposit slip is generated. Still, the interest represents earnings for the business and needs to be reflected as such. Additionally, interest added to an account changes its balance, which also must be reflected in the business's books. Recording interest earned requires a general journal entry.

  • Date the journal entry for the day interest was posted to the account. If it is a bank account, the date posted can be found on the bank statement.

  • Debit the bank or investment account that has earned the interest by the amount of interest earned. You should have balance sheet accounts for all bank and investment accounts in place. Adding the interest earned to the account will aid you in reconciling the account each month.

  • Credit interest income for the amount of interest earned. Interest income should be set up on your chart of accounts as an "Other Income and Expenses" account. These accounts are listed last on the Profit and Loss statement.

  • Name the journal entry, or use the "memo" space to describe the entry. A standard description of "to record interest earned in account for the month ended " would be appropriate.

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Resources

  • "Bookkeepers' Bootcamp: Get a Grip on Accounting Basics"; Angie Mohr, August 2010
  • "Bookkeeping Made Simple"; David A. Flannery; May 2005

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