Accrued Interest Income
A business earns interest on its money deposits of 1,000 but does not receive the amount into its bank account until after the month end. Consequently as the income has been earned but not received, it needs to be accrued for in the month end accounts using an accrued interest income journal entry.
Accordingly the double entry bookkeeping journal entry to show the accrued interest is as follows:
Accrued Interest Income Journal Entry
The accounting records will show the following bookkeeping transaction entries to record the accrued interest income.
| Account | Debit | Credit |
| Accrued Interest Income | 1,000 | |
| Interest Income | 1,000 | |
| Total | 1,000 | 1,000 |
Accrued Interest Income Journal Entry Explained
Debit
Interest income has been earned by the business but not received. Because 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.
Credit
Additionally 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. It is important to realize that this is true at any time and applies to each transaction. The following table shows the accounting equation for this transaction.
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 earnings and therefore the owners equity in the business.
Popular Double Entry Bookkeeping Examples
Another double entry bookkeeping example for you to discover.
- Accrued Revenue Accounting
- Credit Note for Discount Allowed
- Goods Withdrawn For Personal Use
- Consumable Supplies Expense
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.