Journal Entry of fixed deposit in Accounting

What are fixed deposit .

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

In accounting Fixed deposit is Asset by nature .

Now understand it with its journal entry

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

When fixed deposit is made following journal entry need 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 .

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 Insurance company	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.

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.