Interest on fdr

(A). Journal Entries:
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1. At the time of booking a fixed deposit:
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Investment in fixed deposit with XYZ Bank….. Dr.
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To, Cash/Bank (as the case may be)
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2(a). Entry for accrued interest (in case of no TDS):
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Accrued interest on fixed deposit…… Dr
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To, Interest on fixed deposit
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2(b). Entry for accrued interest (in case of TDS):
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Accrued interest on fixed deposit…… Dr
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TDS u/s 194A (AY xx-xx)…….Dr
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To, Interest on fixed deposit
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3(a). At the time of maturity (if not renewed further)
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XYZ Bank……..Dr.
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To, Investment in fixed deposit with XYZ Bank
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To, Accrued interest on fixed deposit
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3(b). At the time of maturity (if renewed further/roll-over)
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Investment in fixed deposit with XYZ Bank ………..Dr.
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To, Investment in fixed deposit with XYZ Bank
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To, Accrued interest on fixed deposit
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(B). Calculation of fixed deposit interest:
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Generally, banks use quarterly compounding to calculate the interest. Some banks also offer the facility of quarterly/monthly interest payout. So, see which option you have opted for. More often than not, it’s the former.
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Example: FD amount = Rs. 35,000, Date of booking = 27.09.2013, Maturity = 27.09.2014, Rate of interest = 9%, Maturity amount = Rs 38,258
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FY	QTR	Days	Interest	Compounded Value
2013-14	1	0	-	35,000.00
	2	3	25.89	35,025.89
	3	92	794.56	35,820.45
	4	90	794.92	36,615.37
			1,615.37
FY	QTR	Days	Interest	Compounded Value
2014-15	1	91	821.59	37,436.96
	2	89	821.04	38,258.00
			1,642.63

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Accrued interest r/off: FY 13-14 = Rs. 1,615 and FY 14-15 = Rs. 1,643. Sometimes, there might be few rupees of difference with bank’s calculation due to rounding off. Need not worry about that, adjust in the last quarter accordingly.