What is Interest Earned?
Interest is a fee charged by a lender to a borrower for lending money. For a business, interest earned usually arises on money deposited with a financial institution such as a bank, and can be simple or compound interest.
Interest earned is usually reported in the financial statements of a business in the accounting period in which it is earned under the accounting categories of interest income, interest revenue, or investment revenue.
The amount of interest earned depends on the amount invested, the interest rate, and the length of time over which it is invested.
For example, if a business has deposited 10,000 with a bank earning 5% simple interest, at the end of the year, the interest earned is 10,000 x 5% = 500. If the interest is deposited in the bank account of the business, the accounting journal to post this interest earned to the accounting records would be as follows.
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