Table of Contents
Journal Entry of fixed deposit in Accounting
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.
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 3. No interest received.
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.
After the end of the accounting year on 31 March 2021.
| |||||||||||||||||
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
