Journal Entry of fixed deposit in Accounting
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.