Interest Received Journal Entry and Its Accounting Treatment

The interest received journal entry records the income that a business earns from interest. It comes from savings accounts, investments, or loans given to others. The journal entry for interest received is simple: Debit Cash/Bank and Credit Interest Income. It shows the money coming in and the income earned. This type of entry is a part of regular accounting and helps maintain accurate financial records. Understanding this concept is very important for students, especially those learning basic or advanced accounting. In this article, we will learn how to pass the interest received journal entry with examples and simple terms.

What is Interest Received Journal Entry?

The journal entry for interest received is very important in both small and big businesses. Every business earns interest from banks or investments. When they get this money, they need to record it correctly in their books. This entry shows that the company has earned extra income during the period. The basic interest received journal entry is:

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
dd/mm/yyyy	Bank A/c Dr.		₹xxx
	To Interest Income A/c			₹xxx
	(Being interest received recorded)

You debit the bank account because money is coming into the business. You credit the interest income account because it is income.

When Do You Use This Entry?

You use this journal entry when:

• You receive interest from a fixed deposit
• You get interest from a savings account
• You receive interest from a loan given to someone

This kind of entry is also known as the journal entry for interest income. The money received increases both your cash and your income.

Why is it Important?

This entry shows how much money a company earned from sources other than its main business. It gives a complete view of how the business is doing. Recording it correctly helps during audits, tax filing, and while preparing financial reports. It also ensures that your interest income in trial balance is shown correctly.

For example, if a company earns ₹500 as interest from a bank deposit, they must record it using the correct double-entry method. This is also called interest received double entry.

In accounting, the entry is short, but it plays a big role in showing financial health. The interest received adds to the profit of the company and is often shown under “Other Income” in the profit and loss account. You may also find cases where interest is received at the end of the financial year but is not yet recorded. That case is called accrued interest received journal entry. You must still pass an entry to show that this income is due. This topic may look small, but it is essential for preparing for exams, making reports, and managing business accounts correctly.

How to Record Interest Received in Accounting?

Recording interest received in accounting is an important task that every student and business person must understand. It is not just about writing entries but also about knowing which accounts to affect, when to record them, and how they impact the books. This part explains the correct method and process to record the interest received journal entry.  Let us go step by step to record interest received in accounting.

1. Identify the Source of Interest: You need to check if the interest came from a bank, investment, or loan.
2. Note the Date of Receipt: Write down the date when the interest was received.
3. Decide the Accounts Involved:
   • One account will always be Bank or Cash (asset).
   • The second account will be Interest Income (income).
4. Apply the Double Entry Rule:
   • Debit what comes in – here, it is money (Bank or Cash).
     Credit what is earned – here, it is income (Interest Income).

This process follows the interest received accounting treatment. It makes sure that the records are accurate and as per accounting rules.

Example of a Journal Entry

Suppose a company receives ₹2,000 as interest from a fixed deposit on 30th March 2025. The entry would be

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
30/03/2025	Bank A/c Dr.		₹2,000
	To Interest Income A/c			₹2,000
	(Interest on FD received)

If the interest is earned but not received yet, you will record it as Accrued Interest:

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
31/03/2025	Accrued Interest A/c Dr.		₹2,000
	To Interest Income A/c			₹2,000
	(Interest earned but not received)

In this way, you record the income when it is earned, even if not been received. This method matches the accrued interest received journal entry type.

Recording in Cash Book and Ledger

When the company receives the money, it records it in the interest received in the cash book. It goes to the Bank column as a receipt. In the ledger, you create an interest income account, and the credit side shows all the interest you earn.

This also appears in the trial balance. You write the interest income on the credit side. This ensures your books are balanced and true.

Real-World Application

Many Indian students and small business owners receive interest. If they forget to record it, their income statement will show lower profit. So, it is very important to note and enter the right amounts at the right time. By using the correct interest on investment journal entry, companies and students can maintain good records and avoid mistakes. You must also remember that the bank interest received journal entry is a part of total earnings. So, include it when you calculate profits. Understanding how to record this helps in competitive exams like CA and ACCA, and also helps in real-life business accounting.

Interest Received Journal Entry with Examples

Learning by example is the best way to understand how to pass the interest received journal entry. Examples show how different situations need different entries. This section explains many such examples that help you master the topic.

Example 1: Interest from Savings Account

A company receives ₹500 from its savings account on 1st April 2025.

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
01/04/2025	Bank A/c Dr.		₹500
	To Interest Income A/c			₹500
	(Interest from savings account received)

This is the simplest form of interest income journal entry.

Example 2: Interest on Loan Given

Let’s say you give a loan of ₹50,000 to someone and get ₹3,000 as interest after 3 months.

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
30/06/2025	Bank A/c Dr.		₹3,000
	To Interest Income A/c			₹3,000
	(Interest on loan received)

This entry is used when the money is received. If you earn it but don’t receive it yet, you use accrued interest entry.

Example 3: Accrued Interest at Year-End

If interest of ₹4,000 is due on 31st March but not received:

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
31/03/2025	Accrued Interest A/c Dr.		₹4,000
	To Interest Income A/c			₹4,000
	(Interest earned but not received)

This is very common in Indian companies that close their accounts on 31st March.

Importance of Proper Entries

If you do not record these entries, your interest in accounting will show the wrong values. It may also cause a mismatch in the trial balance and affect your profit figures. Make sure you understand when to record what. These journal entries also help in preparing financial reports and tax returns. They are part of interest income in the trial balance and show that the company has more than one source of income. Every example in this section shows a new scenario. Whether it is from banks, loans, or investments, you must record the interest received journal entry correctly.

Relevance to ACCA Syllabus

In ACCA, financial reporting includes the proper classification of income, such as interest. Understanding the interest received journal entry is essential in preparing financial statements per IFRS standards. This forms part of Financial Reporting (FR) and Strategic Business Reporting (SBR) papers, helping candidates learn accurate recognition and disclosure of income.

Interest Received Journal Entry  ACCA Questions

Q1: What is the correct journal entry when interest is received in cash?
A) Bank A/c Dr. To Interest Income A/c
B) Interest Income A/c Dr. To Bank A/c
C) Interest Expense A/c Dr. To Bank A/c
D) Bank A/c Dr. To Interest Expense A/c

Ans: A) Bank A/c Dr. To Interest Income A/c

Q2: Under IFRS, when should interest income be recognized?
A) When the cash is deposited
B) When the interest is declared
C) On an accrual basis over time
D) When tax is deducted at source

Ans: C) On an accrual basis over time

Q3: In which section of the Statement of Cash Flows is interest received usually reported under IFRS?
A) Operating Activities
B) Financing Activities
C) Investing Activities
D) Equity Activities

Ans: A) Operating Activities

Q4: Which financial statement shows the total interest received in a year?
A) Statement of Financial Position
B) Statement of Changes in Equity
C) Statement of Profit or Loss
D) Statement of Cash Flows

Ans: C) Statement of Profit or Loss

Q5: If interest is receivable but not yet received, which account is affected?
A) Cash
B) Accrued Income
C) Interest Payable
D) Unearned Revenue

Ans: B) Accrued Income

Relevance to US CMA Syllabus

In the CMA exam, especially under Part 1: Financial Planning, Performance, and Analytics, recording and interpreting revenues like interest received is a key concept. Understanding this ensures students can prepare and analyze accurate financial reports by US GAAP.

Interest Received Journal Entry  US CMA Questions

Q1: What is the journal entry if interest income is received by cheque?
A) Interest Income A/c Dr. To Bank A/c
B) Bank A/c Dr. To Interest Income A/c
C) Interest Receivable A/c Dr. To Cash A/c
D) Cash A/c Dr. To Accrued Income A/c

Ans: B) Bank A/c Dr. To Interest Income A/c

Q2: Interest income earned but not yet received is classified as:
A) Deferred Revenue
B) Accrued Expense
C) Accrued Revenue
D) Unearned Income

Ans: C) Accrued Revenue

Q3: Under US GAAP, how is interest income measured?
A) Fair Value
B) Nominal Value
C) Historical Cost
D) Effective Interest Method

Ans: D) Effective Interest Method

Q4: Which of the following increases when interest is received?
A) Liabilities
B) Revenues
C) Expenses
D) Drawings

Ans: B) Revenues

Q5: If a company receives interest quarterly, how often should it record the income?
A) Once at year-end
B) Only when received
C) Quarterly on an accrual basis
D) After income tax filing

Ans: C) Quarterly on an accrual basis

Relevance to US CPA Syllabus

The CPA exam, particularly in FAR (Financial Accounting and Reporting), requires an understanding of revenue recognition principles. This includes how interest income is recorded using the accrual concept under both US GAAP and IFRS frameworks.

Interest Received Journal Entry  US CPA Questions

Q1: If interest income is earned but not yet received, which journal entry is correct?
A) Interest Receivable A/c Dr. To Interest Income A/c
B) Bank A/c Dr. To Interest Income A/c
C) Cash A/c Dr. To Accrued Interest A/c
D) Interest Expense A/c Dr. To Bank A/c

Ans: A) Interest Receivable A/c Dr. To Interest Income A/c

Q2: Where is interest income shown on the income statement?
A) Operating Income
B) Other Income
C) Gross Profit
D) Retained Earnings

Ans: B) Other Income

Q3: Which basis is used for recognizing interest income under accrual accounting?
A) Cash Basis
B) Matching Basis
C) Periodic Basis
D) Time Proportion Basis

Ans: D) Time Proportion Basis

Q4: When an investment earns interest, what is the accounting effect?
A) Increase in expenses
B) Decrease in liabilities
C) Increase in assets and income
D) Decrease in equity

Ans: C) Increase in assets and income

Q5: What is the correct treatment for accrued interest in financial statements?
A) Note only in disclosures
B) Shown as a liability
C) Recognized as asset and income
D) Ignored until received

Ans: C) Recognized as asset and income

Relevance to CFA Syllabus

In the CFA Level I and II exams, students must understand how to recognize interest income as part of Financial Reporting and Analysis. Recording interest received affects both the income statement and the cash flow statement and plays a role in valuation and investment analysis.

Interest Received Journal Entry CFA Questions

Q1: How does receiving interest affect financial statements?
A) Increases liabilities and decreases equity
B) Increases revenue and assets
C) Increases expenses and liabilities
D) No effect

Ans: B) Increases revenue and assets

Q2: Under IFRS, interest received can be shown under which cash flow section?
A) Investing or Operating
B) Operating or Financing
C) Investing only
D) Financing only

Ans: A) Investing or Operating

Q3: Which is the correct journal entry when interest income is earned and not yet received?
A) Bank A/c Dr. To Interest Income A/c
B) Interest Receivable A/c Dr. To Interest Income A/c
C) Interest Income A/c Dr. To Interest Receivable A/c
D) Accrued Income A/c Dr. To Cash A/c

Ans: B) Interest Receivable A/c Dr. To Interest Income A/c

Q4: If an analyst is adjusting financials, how is accrued interest treated?
A) Ignored
B) Deferred expense
C) Added to receivables and income
D) Subtracted from liabilities

Ans: C) Added to receivables and income

Q5: What type of income is interest income on financial statements?
A) Core Operating Revenue
B) Non-Operating Income
C) Equity Income
D) Deferred Revenue

Ans: B) Non-Operating Income