Need some help about Receivable Recording

[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!!!

 

[kirby]

There is no unique rule involved it is just the use of accrual accounting. To do this you have to calculate the amount of bank interest earned but unpaid as of month end . Lets say it is $2000. So you make a March entry of
Dr accrued interest receivable (asset acct). $2000
Cr interest income $2000

Then reverse that entry on April 1st

Note that if you are going to start accruing income monthly you also need to start accruing the expenses monthly too!

 

[Helter Skelter]

There is no unique rule involved it is just the use of accrual accounting. To do this you have to calculate the amount of bank interest earned but unpaid as of month end . Lets say it is $2000. So you make a March entry of
Dr accrued interest receivable (asset acct). $2000
Cr interest income $2000

Then reverse that entry on April 1st

Note that if you are going to start accruing income monthly you also need to start accruing the expenses monthly too!

Thank you very much Kirby for your guidance. Please refer me, if you can, any such material available online about the same topic so that I can study it in detail. THANKS!!

 

[Michael Myers]

Interest

Hi,


Ref......3w.hmrc.gov.uk/taxon/bank.htm
States:
“You pay tax on your interest in the tax year that the interest is paid to you (or credited to your account) even if you've earned part of it in previous tax years.”

Hope this helps