Interest Receivable Accouting....

[Helter Skelter]

Hi there!

I need your help on this particular matter. As we all know at the end of the financial year we do the required adjustments to prepare our Financial Statements. I would like to know that we have a saving account at Bank and the Bank provides interest on saving at the start of next month (say March's profit on in between 5-7 April). So, if we are closing our accounts on March, should we record March's profit (which is actually credited by the back into our account on April) as other income-Interest in income statement and carry the interest receivable on Balance sheet. Please guide me through the appropriate recording process and according to what rule it should be done or not done?? Hope to see your response soon.

Thanks in advance!!!

 

[bklynboy]

If immaterial you can record on cash basis.

If material or if you want to have your books as up to date as possible, you can record the interest. Depending on when you close your books each month, you could use the statement received one week after the monthly close to record the actual amount by debiting interest receivable and crediting interest income. If you close your books before you know the exact amount, you can estimate the amount based on the rates you earn and balance in the bank. The estimate is then trued up in the next month when you get your actual statement.

I also think the bank can provide the exact amount on the first day of teh subsequent month if you asked them for it.