ReconciledrillInterest earned
Interest earned is credited by the bank and shows on the statement before the company records it. Add it to the book balance in the reconciliation and post a debit to Cash and a credit to Interest Income. It never adjusts the bank side because the statement already includes it.
Syntax
Book side: add interest. Entry: Dr Cash [interest] / Cr Interest Income [interest]| Part | What it is |
|---|---|
Side | Book side, add |
Account | Interest Income (other income) |
Timing | Recorded in the month the bank credits it |
Examples
Book balance 8,000; statement shows interest credited 18Result: Adjusted book balance 8,018. Entry: Dr Cash 18 / Cr Interest Income 18.
Statement: interest 18, service charge 25; book balance 8,000Result: 8,000 + 18 - 25 = 7,993. Entries: Dr Cash 18 / Cr Interest Income 18 and Dr Bank Service Charges 25 / Cr Cash 25.
Common mistakes
- Adding interest to the bank statement balance: it is already in there.
- Netting interest against fees in one line: post them separately so income and expense are both visible.
- Forgetting the entry after the reconciliation: the book balance stays understated by the interest.
Practice Interest earned
These drills check your answer on live data, free, no account needed.
- Interest earnedClassify every line on the bank statement and in the cash book, then enter the adjusted bank and book balances.
- Recording fees and interestClassify every line, enter both adjusted balances, then choose the journal entry the company must record for each item that affects its books.
Questions
Is interest earned a debit or credit?
Interest Income is credited; Cash is debited. Both go up, since income increases with a credit and assets increase with a debit.
Why does interest appear on the book side?
Because the company did not know the amount until the statement arrived. The bank side already reflects it.
Related
- Interest income journal entryRecord bank interest with a debit to Cash and a credit to Interest Income when the statement shows it. Includes the accrual version for interest not yet paid.
- Bank service chargeA bank service charge appears on the statement before the books know about it. Subtract it from the book balance and post Dr Bank Fees / Cr Cash.
- Adjusted book balanceAdjusted book balance = ledger cash + interest + notes collected - service charges - NSF checks, plus or minus book errors. Examples and the matching entries.
- Note collected by the bankWhen the bank collects a note receivable or customer payment, the statement shows it before the books. Add principal and interest on the book side, post it.