Interest on asset

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Chintan Patel (Querist)
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18 December 2011 when cash is received for interest on asset,then is it necessary that the journal entry must be CASH A/C....DR
TO INTEREST A/C

CANT IT BE WRITTEN

ASSET A/C....DR
TO INTEREST A/C

PLEASE EXPLAIN BY ELABORATING.....PLEASE

I AM NEW TO THE FIELD OF ACCOUNTING

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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18 December 2011 Interest earned from an asset is your income. It does not increases the value of asset. It can not be capitalized.

Therefore entry will be---

Cash/Bank/Party A/c Dr.
To Interest A/c

Say a assets value is Rs 10.00, if you earn interest of Rs 2.00 how an it increase the value of asset. And if you keep debiting asset on receiving income then you are capitalizing your income. Which is wrong.

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anurag

anurag (Expert)
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18 December 2011 Suppose u made a fix deposit in bank for 6 months.
than at the time u receive the interest
Bank Dr
Interest income Cr.
this is because money has come to ur bank account in the form of interest income.
this is the basic entry to be done in every condition.
Rest depends upon accounting policies, accounting is not exact science, there are policies and assumption which makes it a blend of art and mathmatics.

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