The complications of Accounting for the layman! Accrued Interest is interest that has been added to a Fixed Deposit (FD) at the time interval it accumulated and computed, but not actually received or paid out to a depositor. There is no transfer of money into the Savings Bank of the Fixed Deposit holder. Basically, in accounting terms, this is accrued income. Here I illustrate how the entry will be passed in GnuCash. Do consult an accounting professional before relying on or using the information below.
This concept will apply to any interest bearing account like PF, NSC too.
Create the following accounts in GnuCash (A/c = Account):
FD A/c under Assets.
FD Accrued Interest A/c under Assets (Optional)
FD Interest A/c under Income.
TDS A/c under Expenses.
TDS = Tax Deductible at Source and also known as Withholding Tax in some countries.
For convenience, you may not want to create the FD Accrued Interest a/c under Assets but just add the Accrued Interest into the FD A/c under Assets.
Pass following entry when the interest accrues. Accrued Interest amounts are available in an annual statement of Fixed Deposit Account from the bank.
FD Accrued Interest a/c Dr
TDS A/c Dr
To FD Interest A/c Cr.
On FD maturity, pass following entry:
Bank A/c Dr.
FD A/c Cr.
Accrued Interest A/c Cr.
1. Some banks cut TDS from FD accrued interest.
2. Some banks cut TDS from the Savings Bank account.