How to treat reinvestment from interest income

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This query is : Resolved

Praveen Kumar (Querist)

14 February 2014 When interest is reinvested without crediting.As both principal + interest.what is accounting entry???????

Nikhil Kaushik

Nikhil Kaushik (Expert)

14 February 2014 well for accounting and tax purposes, you need to route it through P&L account first.

So first entry shall be

Accrued Interest A/c Dr
To Interest on FD A/c

Later you can transfer Accrued Interest A/c to FD

Bank FD A/c (A/c No) Dr
To Accrued Interest A/c

Praveen Kumar

Praveen Kumar (Querist)

14 February 2014 hi nikhil:-when it is reinvested, whether it have effect in p&l after transferring to FD

Nikhil Kaushik

Nikhil Kaushik (Expert)

14 February 2014 see you have already given effect to P&L. when you transfer from accrued interest to FD, the transaction wont get routed through P&L.

Praveen Kumar

Praveen Kumar (Querist)

14 February 2014 so the interest portion will not get reduced from interest on fd a/c???

Praveen Kumar

Praveen Kumar (Querist)

14 February 2014 And also ur telling for Accrued interest, what about if fd matured and then interest and principal is reinvested, when reinvesting like that interest portion which already credit in P&L get reduced ah? give me the journal entry for this issue?

Nikhil Kaushik

Nikhil Kaushik (Expert)

14 February 2014 Interest on FD A/c is to be charged to Profit & loss account and expensed out. it is a nominal account.

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