Journal entry for an interest received from a bank

The interest received from the bank can be transacted in the journal book using the modern rules of accounting as –

Why Bank A/c is Debited?

when the interest income is accrued it increases the bank balance and the bank balance is recorded as a current asset. Hence, its debited since interest income increases the entity’s bank balance.

Why is Interest Received Credited?

The interest received is an income for an entity and as per the modern rules of accounting, we credit the increase in income. Therefore, we credit interest income a/c.

The interest received from the bank can be transacted in the journal book using the golden rules of accounting as –

Why is Bank A/c Debited?

Bank Account is classified as a “personal account” and as per the golden rule of accounting for personal account “we debit the receiver and credit the giver.”And hence, we debit the bank account.

Why is income received from bank credited?

Income received from a bank can be classified as “nominal account” and as per the golden rule of accounting for nominal account “we debit all expenses and losses and credit all incomes and gains.” so, interest received from the bank is credited.

For Example,

Mr Alex has a savings account with ABC Bank. The balance at the end of the first quarter with the bank is 1,00,000. The bank offers 6% p.a interest on such balance. Journalise the same.

Solution :

Journal of Mr Alex

I have tried to logically explain the entry for interest income from the bank. I hope it helps.

Aastha Mehta.