Accrued Interest Income Journal Entry

Accrued Interest Income

A business earns interest on its money deposits of 1,000 but does receive the amount into its bank account until after the month end. As the income has been earned but not received, it needs to be accrued for in the month end accounts.

The journal entry to show the accrued interest income is as follows:

Accrued Interest Income Journal Entry

The accounting records will show the following bookkeeping transaction entries to record the accrued interest income.

Accrued Interest Income Journal Entry
Account Debit Credit
Accrued Interest Income 1,000
Interest Income 1,000
Total 1,000 1,000

Accrued Interest Income Journal Entry Explained

Interest income has been earned by the business but not received. As the amount is owed to the business it is recorded as a receivable called accrued interest income. The debit records the increase in the receivables in the balance sheet of the business.

The credit to the income statement account represents the interest income earned by the business.

Accounting Equation – Accrued Income

The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the equity of the business. This is true at any time and applies to each transaction. For this transaction the accounting equation is shown in the following table.

Accrued Interest Income – Accounting Equation
Assets = Liabilities + Owners Equity
Accrued Income = None + Interest Income
1,000 = 0 + 1,000

In this case an asset (accrued income) increases representing money owed to the business, this increase is balanced by the increase in owners equity. The credit to the income statement for the interest income earned, increases the profit which increases the retained profits and therefore the owners equity in the business.

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