How do you account for interest revenue?
submitted by Viola Solo

Frank Teller

Interest revenue is recorded when you earn it. You'd credit an interest income account. So, if you have a savings account that pays interest, at the end of the period, you just add that interest to your books as income.

miles and miles

You'd use an accrual basis for interest revenue. You'd record it when it's earned, not when it's received.

If you're earning interest over time, you might need to accrue it at the end of the period if it hasn't been paid yet. Debit the interest receivable and credit interest revenue. When you actually get paid, then you debit cash and credit receivable.

wallace

Yes, you can use accrual basis for this. You'd record the interest earned by debiting "interest receivable" and crediting "interest revenue."

frenson

Because interest is deposited each month, I don't know if you'd need to accrue that. If you're a small business, cash basis would be the simple way. Just recognize interest income as it's deposited each month. Then you don't have to deal with receivables.

If you're talking about a large entity, like a public company, it may be mandated by GAAP to use accrual because it keeps your income in the period it was earned in.

It wouldn't make a big difference for a small company, earning a few extra bucks in interest. A big company, on the other hand, will have substantial interest, and they'll want to know how much to expect before it's actually deposited.