Bank Interest Straddling FYE

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mark057
mark057 Registered Posts: 354 Dedicated contributor 🦉
Hi,

I've decided to post this in the MIP area because I'm looking for a definitive answer regarding the above.

I'm helping a company limited by guarantee with their books.

I just wanted to know how to treat the receipt of regular bank interest on the main bank account.

The interest is paid at the beginning of a month and therefore straddles month and year ends.

Can I credit the full interest into the bank interest account on the date the bank paid it in or do I need to adhere strictly to the accruals concept and appotion the interest accordingly?

Silly liitle problem but I've not come across irt before.

Thanks

Mark

Comments

  • groundy
    groundy Registered Posts: 495 Dedicated contributor 🦉
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    We always credit bank interest at the point it is received and never accrue.
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    groundy wrote: »
    We always credit bank interest at the point it is received and never accrue.

    Ditto.
  • claudialowe
    claudialowe Registered Posts: 275 Dedicated contributor 🦉
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    Me too - and these days you could justify it on the grounds that the bank might go bust :crying:

    Claudia
  • qwerty
    qwerty Registered Posts: 82 Regular contributor ⭐
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    We always credit bank interest at the point it is received and never accrue.
    To be honest, we do this too. However, stricly speaking the interest receivable relating to the period in question should be accrued for, although the amounts are hardly ever material (espicially in the current climate of low interest rates) so no accrual is accounted for.
  • JodieR
    JodieR Registered Posts: 1,002 Beyond epic contributor 🧙‍♂️
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    I've also always accounted for interest on the day it's received, but I think I can recall in my first accounts job that my manager did used to accrue for it. never seen it done since!
  • Toffeemadblue
    Toffeemadblue Registered Posts: 102 Dedicated contributor 🦉
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    We always accrue interest at the monthend and the charges too as both are invoiced quarterly and the banks quarters don't match ours
  • slackda
    slackda Registered Posts: 460 Dedicated contributor 🦉
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    i would say if you accrue, accrue to a deferred income account, don't liek the thought of recognising income with out definate back up.
  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
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    If I can be bothered I accrue. For most of my clients the amount is negligible.

    Those that have accounts that pay interest annually will certainly need an accrual.
  • Hasan.Ahmet
    Hasan.Ahmet Registered Posts: 87 Regular contributor ⭐
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    Originally posted by slackda
    "i would say if you accrue, accrue to a deferred income account, don't liek the thought of recognising income with out definate back up".

    What does this mean? Anyone with any ideas?
  • slackda
    slackda Registered Posts: 460 Dedicated contributor 🦉
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    Sry, if i wasn't making sense, imo if the intrest value isn't 100% guaranteed i would record both entries for the intrest in the BS rather than the P&L, only on substantial numbers though. anyone elses thoughts comment on this would be helpful.
  • qwerty
    qwerty Registered Posts: 82 Regular contributor ⭐
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    i would record both entries for the intrest in the BS rather than the P&L
    Sorry, but that is even more confusing. Which "both entries" would you record in the balance sheet? :confused1:

    The double entry would be:
    Dr Accrued income (balance sheet)
    Cr Interest receivable (profit and loss)

    The original question stated that the interest is received shortly after the month end. So, by the time you are coming to write up the books, you would know the interest you need to recognise anyway. Even if it was an account paying annual interest, the rates would be available, and you could extract information from bank statements to work out the balance on the account and therefore a fairly accurate figure for interest which is due for that period.
  • slackda
    slackda Registered Posts: 460 Dedicated contributor 🦉
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    Now you got me thinking, so your process would be to

    CR Accrued income
    DR Bank
    When you actually receive the intrest?

    Im thinking Managment accounts has made my brains all mushy.
  • qwerty
    qwerty Registered Posts: 82 Regular contributor ⭐
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    Yes, sort of. The correct way would be to:

    Dr bank
    Cr Interest receivable

    Then,

    Dr Interest receivable
    Cr Accrued income

    I think the above way is best as it provides a full audit trail of what has actually happened and also because the interest received will most likely not equal the accrued income you have provided for.
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