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Journal entry for interest on FD

(Guest)

i faced a problem in audit....one of our client has passed following journal .he has deposited 12lac for 3 years as fixed deposit with HDFC bank...at 31 st march he received intrest statement stating 50000 as intrest accrued on above and 5000being TDS deducted.total FD value being 12.5 lac..he passed following journal

TSD(receivable)    5000     Dr.

Intrestreceivable 45000    Dr.

   To intrest accrued on FD(indirect income)                         50,000

i found it right but my question is it will affect p/l a/c ...as i heard interest on fd must be capitalized in to FD balance in balance sheet.... if above entry how will it be capitalized????????

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33 Replies

Anshul Shukla (Article assistant) (63 Points)
Replied 16 July 2011

the correct entry is

Interest Receivable A/c Dr. 45000

Advance income Tax (T.D.S) A/c Dr. 5000

To Interest 50000

And Rs 50000 will be trated as the income of current yr as per AS 9 and interest receivable will be added in the value of FDR in the balance sheet.

1 Like

(Guest)

ya i think u r right ...i was confused coz i thought 50000 will be added to FD a/c...but actually 45000 only.... coz 5000 is already paid in form of TDS..

m U d I t (student) (108 Points)
Replied 17 July 2011

hi ,

i think if ur interest is accrued then u must pass this entry...

FD A/c Dr. 45000

TDS RECOVERABLE A/c Dr. 5000

To INTEREST A/C 50000

reason being that if interest is accrued then you will not receive such amount until FD is matured (unless it is flexi a/c FD).therefore u must debit FD a/c instead of interest recoverable a/c.

also as instead of advance tax u should credit TDS RECOVERABLE a/c because there is difference between the two.

3 Like

CA Mohit kumar jain (Searching Source of Money) (149 Points)
Replied 17 July 2011

yes u r correct

it should be on accrual basis

CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 17 July 2011

the entry is correct. the reason of rs. 45000 to be t/f to fdr ac. is 50000 is accrued and out of this 50000 rs. 5000 is deducted by bank as tds

Anshul Shukla (Article assistant) (63 Points)
Replied 18 July 2011

Its is interest accrued but not received account instead of FDr A/c

Aravind.. (CA) (1262 Points)
Replied 18 July 2011

Ya, the entry is correct. When the entries are transferred interest accrued on fd will become interest income and will be in credit side of P&L. Interest receivable gets added up with the FD. TDS goes under the head advances in balance sheet.

Mayank Ahuja ("Learner") (586 Points)
Replied 18 July 2011

Yaa Mudit is right........

C.A. Sandeep Wawhal (Chartered Accountant PGDFM BCom.) (1823 Points)
Replied 18 July 2011

For more ............. please see attached file

Attached File : 408827 772147 book11.xls downloaded: 6241 times

1 Like

CA RAHUL AGARWAL (CA, B.com) (250 Points)
Replied 18 July 2011

The correct entry will be as follows-

ACCRUED INTEREST ON FDR A/C Dr. 45000

TDS RECEIVABLE A/C Dr. 5000

TO INTEREST ON FDR A/C 50,000

FDR AMOUNT REMAINS FIXED TILL MATURITY SO CANNOT DR. FD A/C TILL MATURITY.

ON MATURITY OF FDR FOLLOWING ENTRY WILL BE PASSED-

BANK A/C Dr. 13,00,000

TO FDR A/C 12,50000

TO ACCRUED INTEREST ON FDR A/C 50,000

THIS IS THE TOTALLY CORRECT WAY FOR FDR OR NSC OR PPF

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 18 July 2011

the interest on FD gets capitalized at end of every year wtih original after TDS, and then the depositor gets interest on gross amount ( FD principal+ interest credited after TDS), hence its always preferred to increase the FD value by interest amount, in place of creating "interest receivable"

1 Like

CA RAHUL AGARWAL (CA, B.com) (250 Points)
Replied 18 July 2011

AS INTEREST ON FDR IS RECEIVED ONLY AFTER MATURITY OF FDR SO WE HAVE TO SHOW INTEREST ON ACCRUAL BASIS SO U CANNOT JUST ADD THE INTEREST AMOUNT IN FDR.

Kanhaiya (Nangia & Co.) (1981 Points)
Replied 18 July 2011

Originally posted by : rahul
	The correct entry will be as follows- ACCRUED INTEREST ON FDR A/C Dr. 45000 TDS RECEIVABLE A/C Dr. 5000 TO INTEREST ON FDR A/C 50,000 FDR AMOUNT REMAINS FIXED TILL MATURITY SO CANNOT DR. FD A/C TILL MATURITY. ON MATURITY OF FDR FOLLOWING ENTRY WILL BE PASSED- BANK A/C Dr. 13,00,000 TO FDR A/C 12,50000 TO ACCRUED INTEREST ON FDR A/C 50,000 THIS IS THE TOTALLY CORRECT WAY FOR FDR OR NSC OR PPF