Accountant Forums


Reply
Thread Tools

Accrued interest on purchased bond

 
 
ALLAN LEEDY
Guest
Posts: n/a
Thanked:
 
      05-15-2004, 04:43 AM
Any suggestions on how to account for it?

 
Reply With Quote
 
 
 
 
Fred Smith
Guest
Posts: n/a
Thanked:
 
      05-15-2004, 11:17 PM
Accrued interest is an expense. Account for it using the MiscExp action.

--
Regards,
Fred
Please reply to newsgroup, not e-mail


"ALLAN LEEDY" <(E-Mail Removed)> wrote in message
news:BCCAEE02.1142%(E-Mail Removed)...
> Any suggestions on how to account for it?
>



 
Reply With Quote
 
 
 
 
Mike Pershing
Guest
Posts: n/a
Thanked:
 
      05-16-2004, 03:09 AM
To avoid paying extra tax when you later receive the interest that
you pay to the seller at the time of purchase, you need to keep
track of it. There's a predefined category (in Q2003, at least),
called "_Accrued Int" . It's not linked to any tax line, but
according to IRS Publication 550 (2003), for the year that
you receive that "return of capital", . . . .

. . . include the full amount shown
as interest on the Form 1099-INT on line 1, Part I
of Schedule B (Form 1040). Then, below a subtotal
of all interest income listed, write "Accrued Interest"
and the amount of accrued interest that you paid to
the seller. That amount is taxable to the seller, not you.
Subtract that amount from the interest income subtotal.
Enter the result on line 2 and also on Form 1040, line 8a.

--
Mike /\/\ |_ /*



Fred Smith wrote:
> Accrued interest is an expense. Account for it using
> the MiscExp action.
>
>
>
> ALLAN LEEDY wrote:
> > Any suggestions on how to account for it?
> >




 
Reply With Quote
 
R. C. White
Guest
Posts: n/a
Thanked:
 
      05-20-2004, 04:46 PM
Hi, Fred - and Allan.

> Accrued interest is an expense. Account for it using the MiscExp action.


Well, not exactly an expense. It is a reduction in income.

That may sound like the same thing, but they wind up on different pages on
the tax return and often produce different tax results.

If you buy $50 accrued interest in March and receive $200 interest on that
bond in September, then you report a net of $150 interest income for the
calendar year. You don't "deduct" the $50 in any expense or deduction
category: not on Schedule C for business expenses; not on Schedule A for
investment expenses; or any such "deduction" line. Just report the $200 on
Schedule B (Interest Income), but reduce it by the $50 purchased interest.

If you buy $50 accrued interest in October and receive your first $200
interest on that bond in April of NEXT year, then the $50 does not show up
on the first year's return at all. It is deducted from the $200 interest
reported on NEXT year's Schedule B.

In Quicken, you'll need a holding account of some kind to carry over the $50
from the date of purchase to the date that you receive the interest income
check that includes that purchased interest. The $50 is NOT a part of the
cost of the bond itself, of course. In accounting-speak, it goes into the
Accrued Interest Receivable account. It shows up on accrual-basis financial
statements as a reduction of Interest Income and as a part of the Accrued
Interest Receivable asset balance.

In cash-basis financial statements, purchased interest receivable is a
problem - just like in Quicken - because there are no accrual accounts, so
there's no such account as Accrued Interest Receivable. :>( We have to
work around this in Quicken by using some kind of temporary account (called
"Suspense"?) from the time we purchase the interest until we receive the
check that includes it. Or we can just go ahead and record the purchased
interest as a negative number in the Interest Income category. If we get
that first interest check in the same year, everything works out by
year-end. If the first interest check doesn't arrive until next year, then
we have to increase this year's net Interest Income by the purchased
interest - and carry over the interest income reduction to next year.

RC
--
R. C. White, CPA
(Retired - no longer licensed to practice)
San Marcos, TX
(E-Mail Removed)

"Fred Smith" <(E-Mail Removed)> wrote in message
news:syxpc.465199$Pk3.340119@pd7tw1no...
> Accrued interest is an expense. Account for it using the MiscExp action.
>
> --
> Regards,
> Fred
>
> "ALLAN LEEDY" <(E-Mail Removed)> wrote in message
> news:BCCAEE02.1142%(E-Mail Removed)...
>> Any suggestions on how to account for it?


 
Reply With Quote
 
ALLAN LEEDY
Guest
Posts: n/a
Thanked:
 
      05-29-2004, 11:05 PM
Seems like the right accounting would be a negative entry in the appropriate
category of interest income.

On 5/20/04 9:46 AM, in article 40ace0f7$1_1@127.0.0.1, "R. C. White"
<(E-Mail Removed)> wrote:

> Hi, Fred - and Allan.
>
>> Accrued interest is an expense. Account for it using the MiscExp action.

>
> Well, not exactly an expense. It is a reduction in income.


 
Reply With Quote
 
The Michael
Guest
Posts: n/a
Thanked:
 
      05-29-2004, 11:47 PM
On Sat, 29 May 2004 16:05:10 -0700, ALLAN LEEDY <(E-Mail Removed)> wrote:

>Seems like the right accounting would be a negative entry in the appropriate
>category of interest income.
>


However it doesn't match up nicely with your tax year in many cases. In 2003 I had
quite a bit but was only able to subtract about 10% of it that tax year. I have just
made a notation in my tax records for next year to be sure to use the other 90%. (It
is shown as a separate line on sched B so it's nice to keep it separate.)

In Quicken I dated the carry over accrued interest with a 1/1/04 date and a memo.
--
Mike
 
Reply With Quote
 
 
 
Reply

Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are On
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
accrued bond interest? Jessica Tax 1 04-08-2008 02:09 AM
bond premium and accrued interest lxhop@yahoo.com Tax 3 02-19-2007 07:01 PM
How is accrued interest on a bond handled? NadCixelsyd Tax 2 01-01-2007 04:50 AM
Accrued Municipal Bond Interest Raymond K. Locke Tax 7 02-10-2004 09:05 PM
Record sale of bond with accrued interest? Michael S. Rosen Quicken 1 08-30-2003 01:42 PM


All times are GMT. The time now is 11:32 AM.
Posts in this forum do not constitute the advice of AccountantForums.com or its members. Financial advice should always be taken from qualified advisors before committing to a financial decision.