A business firm receives interest  from the bank on fixed deposits. When a business firm has got surplus money, it can deposit with the bank as fixed deposit and earns the interest from it.

Normally the fixed deposit should be only for a short period because a business firm can invest this idle money in areas where it can earn more profit out of the investment. Though, there is no provision for interest on surplus money lying in current accounts with bank but now days, the bankers have started to give the facility to convert the surplus amount of current account in to temporary fixed deposits. These fixed deposit are broken by the bankers whenever there is a short balance in current account without any instruction from either side. Thus, the business firm gets some interest on these fixed deposits.

Treatment of Interest Received from Bank in Final Accounts

Interest from banks is an indirect income and shown in income side or profit and loss account. Accrued interest is first added to interest received from bank and then it is shown in assets side of balance sheet.

Accounting Treatment of Interest Received From Bank

a) In case of interest credited by bank in current account:-

Type of voucher to be prepared:- Bank Receipt Voucher

Entry to be made

Debit:-  Bank Account

Credit:- Interest Received From Bank Account

b) In case of accrual of interest:-

Type of Voucher to be prepared:Journal Voucher

Entry to be made

Debit:- Interest Receivable From Bank Account

or

Interest Accrued Account

Credit:- Interest Received From Bank Account

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