Accrued interest on purchased bond

Discussion in 'Quicken' started by ALLAN LEEDY, May 15, 2004.

  1. ALLAN LEEDY

    ALLAN LEEDY Guest

    Any suggestions on how to account for it?
     
    ALLAN LEEDY, May 15, 2004
    #1
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  2. ALLAN LEEDY

    Fred Smith Guest

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

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


    "ALLAN LEEDY" <> wrote in message
    news:BCCAEE02.1142%...
    > Any suggestions on how to account for it?
    >
     
    Fred Smith, May 16, 2004
    #2
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  3. 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?
    > >
     
    Mike Pershing, May 16, 2004
    #3
  4. ALLAN LEEDY

    R. C. White Guest

    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


    "Fred Smith" <> 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" <> wrote in message
    > news:BCCAEE02.1142%...
    >> Any suggestions on how to account for it?
     
    R. C. White, May 20, 2004
    #4
  5. ALLAN LEEDY

    ALLAN LEEDY Guest

    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"
    <> 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.
     
    ALLAN LEEDY, May 30, 2004
    #5
  6. ALLAN LEEDY

    The Michael Guest

    On Sat, 29 May 2004 16:05:10 -0700, ALLAN LEEDY <> 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
     
    The Michael, May 30, 2004
    #6
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