# Journal Entry of fixed deposit in Accounting

## What are fixed deposits?

When a fixed amount of money is deposited in the bank and the bank promises to pay the interest along with the fixed deposit amount to its customer this amount is called a fixed deposit.

### Fixed deposit accounting Entry

Fixed Deposit A/c Dr . xxxx

To Bank A/c   xxxxx

(being fixed deposit made with the bank)

#### In accounting Fixed deposit is an Asset by nature.

Rule when we increase our Asset we Debit it in Books of Accounts and when we decrease our Asset we Credit it in Books of Accounts.

Now understand it with its journal entry with the example given below.

Question:

Mr. Malik makes a Fixed Deposit with the bank on 1 April 2019 of Rs 100000  for 3 years and the bank promises to pay Rs 7,000 interest rate per annual.

Solution :

When a fixed deposit is made with the bank the following journal entry needs to pass

 FD A/c Dr 100000 To Bank A/c 100000 Being fixed deposit made with bank

Fixed deposit is Asset hence we are adding Asset in Business year then We Debit Fixed Deposit accounts.

Bank accounts is credited because we use the money of bank to make Fixed Deposit .

Now in  when we get accrued interest on Fixed deposit.

After end of accounting year on 31 march 2020

Journal entry needs to pass

 Accrued Interest On FD A/c 7,000 To Interest On Fd 7,000

Note accrued Interest is interest earned but received it is Asset by nature therefore to increase our asset we debit the accounts.

After end of accounting year on 31 march 2021

Journal entry needs to pass

 Accrued Interest On FD A/c 7,000 To Interest on FD. 7,000

Note: Similarly accrued Interest is interest earned but received it is Asset by nature therefore to increase our asset we debit the accounts.

After end of accounting year on 31 Marches 2021.We have to adjust the accrued interest and debit our bank accounts and credit our fixed deposit

Journal entry needs to pass

 Bank A/c Dr 121,000 To Accrued Interest on Fd 14000 To interest on FD 7000 To Fixed Deposit accounts 100000

Note we adjust our Accrued Interest on FD accounts by Crediting it and interest on Fd for current year need to written and we closed our FD accounts by crediting it as our FD is matured and money is transfer to our Bank A/c.

Fixed deposit is Asset and Interest on Fixed Deposit is income .

Now in this entry we created new Asset Bank with balance Rs. 121000

and income or interest on Fixed deposit  Rs. 21000 our Fixed deposit account is closed.

## Example of Journal entry of Fixed Deposit

### Another Example of Fixed Deposit in of FD.

Make fixed deposit with the bank on 1 Dec 2019 for Rs 100000 . Interest receivable Rs 12,000 per annual. Financial year close on 31 March 2020.

Case 1 Interest received Rs 2000.

Case 2. Interest received Rs 8000

Case 1 Interest received Rs 2000.

In such case the journal entry will be at the end of accounting year will be

 Bank A/c   Dr. 2000 Accrued  Interest On FD 2000 To Interest on FD 4000

Note : Interest on FD to be received is Rs 4000  as we made FD on 1 December 2019 and Financial Year Close on 31March  therefore 12000/12 = 1000 is interest for one month for 4 months it is 4000. But we received on Rs. 2000 it means 2000 is accrued which is not received.

Case 1 Interest received Rs 8000.

In such case the journal entry will be at the end of accounting year will be

 Bank A/c   Dr. 8000 To Advance  Interest On FD 4000 To Interest on FD 4000

Note : Interest on FD to be received is Rs 8000  as we made FD on 1 December 2019 and Financial Year Close on 31March  therefore 12000/12 = 1000 is interest for one month for 4 months it is 4000. But we received on Rs. 8000 it means 4000 is advance Interest received which is not received.

Case 3  No Interest received Rs

In such case the journal entry will be at the end of accounting year will be

 Accrued  Interest On FD 4000 To Interest on FD 4000

Note : Interest on FD to be received is Rs 4000  as we made FD on 1 December 2019 and Financial Year Close on 31March  therefore 12000/12 = 1000 is interest for one month for 4 months it is 4000. But we received no interest it means 4000 is accrued which is not received.

## Journal Entry of Fixed Deposit With TDS

Mr. Malik makes a Fixed Deposit with the bank on 1 April 2019 of Rs 100000  for 3 years and the bank promises to pay a Rs 10,000 interest rate per annual and TDS @ 10% on interest.

In this case TDS is applicable on Interest on FD therefore It to be shown when interest is received.

Solution : When FD is made.

FD A/c Dr

100000

To Bank A/c

100000

Being fixed deposit made with the bank.

After the end of the accounting year on 31 March 2020.

Journal entry needs to pass.

 FD A/c Dr. 9000 TDS Payable A/c Dr. 1000 To Interest on FD 10,000 (being interest  Received on FD

After the end of the accounting year on 31 March 2021.

 FD A/c Dr. 9000 TDS Payable A/c Dr. 1000 To Interest on FD 10,000 (being interest  Received on FD

When FD is matured.

First This year interest on FD and TDS.

 FD A/c Dr. 9000 TDS Payable A/c Dr. 1000 To Interest on FD 10,000 (being interest  Received on FD

100000+9000+9000+9000

Maturity of FD entry

 Bank A/c Dr. 127,000 To Fixed Deposit  A/c 127,000 (being FD matured and paid into bank)

## Fixed Deposit in Balance Sheet

Fixed Deposit is asset by nature therefore Fixed deposit is shown in the Asset side of balance sheet .

 Liabilities Amount Asset Amount Fixed Deposit xxxx

## Accrued interest on Fixed Deposit and intererst on Fixed Deposit .

Accrued interest on FIxed deposit is shown in the credit side of Profit and loss account and added to Interest on Fixed Deposit if given.

 Particular Amount Particular Amount Interest on Fixed Deposit           xxx+ Accrued int on Fixed Deposit                                         xxx xxxx

Accrued on fixed deposit is also shown in the Asset side of the Balance sheet.

## FAQ

#### What is the difference between fixed deposit and recurring deposit?

In Fixed Deposit, we deposit an amount for a fixed period. A fixed deposit provides interest on the deposited amount. Whereas, in recurring deposits, the customer deposits fixed amounts in small intervals for a long period.It is also now as RD. The primary purpose of a RD is to develop the habit of saving regularly.

#### When TDS applies on fixed deposit financial year  2020-21 ?

The TDS rate on fixed deposits (FDs) is 10% This TDS deduction limit on FD has been increased to Rs. 40,000 annually, which applies in AY 2021-22

### Key difference between Fixed Deposit and Loan

 Aspect Fixed Deposit Loan Nature of transaction Investment Borrowing Journal entry for When money is invested in a bank or financial institution. When money is borrowed from a bank or lender. (Depositing money in a fixed deposit account) (Taking a loan from a bank or lender). Debit Bank/Fixed Deposit Account Loan Account Credit Cash/Bank Cash/Bank Purpose To earn interest on the deposited amount. To use the borrowed money for various purposes. Interest The interest earned is credited to the fixed deposit account. The interest paid is debited to the loan account Repayment Upon maturity, the principal amount plus interest is credited to the bank account. Repayment of the loan is done in installments over a specified period. Accounting treatment An asset is created, and cash is reduced. A liability is created, and cash is increased. Effect on balance sheet Increases the asset side (cash and fixed deposit). Increases the liability side (loan payable) and the asset side (cash) Risk Generally considered low-risk. Depends on the borrower’s ability to repay; can be considered higher risk.

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