How to treat accrued interest in income and expenditure account and in balance sheet?

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Solution

Dear student,

Accrued interest is the amount of interest income that is due for receipt but has not been received. It is an asset for the business.

In Income and Expenditure Account, it is shown as an income in the year in which it is earned, as we make accounts on accrual basis.
In Balance Sheet, its value is either added to the Investment it is earned from or as a Current Asset.

Regards

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Similar questions

Accrued income is credited to the profit and loss account and shown in the balance sheet as a current asset. Why?

RECEIPTS AND PAYMENTS ACCOUNT
Dr.				Cr.
Receipts	₹	Payments	₹
To Balance b/d:		By Charity	1,15,000
Cash in Hand	1,15,000	By Rent and Taxes	32,000
Cash at Bank	1,26,000	By Salary	60,000
To Donations	90,000	By Printing	6,000
To Subscriptions	4,28,000	By Postage	3,000
To Legacies	1,80,000	By Advertisements	45,000
To Interest on Investment	45,000	By Insurance	20,000
To Sale of old Newspaper	2,000	By Furniture	2,16,000
		By Investment	2,30,000
		By Balance c/d:
		Cash in Hand	99,000
		Cash at Bank	1,60,000


	9,86,000		9,86,000

Following Receipt and Payment Account was prepared from the cash book of Delhi Charitable Trust for the year ending December 31, 2007

Receipt and Payment Account for the year ending December 31, 2007
Receipts	Amount Rs	Payments	Amount Rs
Balance b/d		Charity	11,500
Cash in Hand	11,500	Rent and taxes	3,200
Cash at Bank	12,600	Salary	6,000
Donation	9,000	Printing	600
Subscription	42,800	Postage	300
Legacies	18,000	Advertisements	4,500
Interest on investment	4,500	Insurances	2,000
Sale of old newspapers	200	Furniture	21,600
		Investment	23,000
		Balance c/d:
		Cash in Hand	9,900
		Cash at Bank	16,000
	98,600		98,600

Prepare Income and expenditure account for the year ended December 31, 2006, and a balance sheet as on that date after the following adjustments:

(a)	It was decided to treat one-third of the amount received on account of donation as income.
(b)	Insurance premium was paid in advance for three months.
(c)	Interest on investment Rs1,100 accrued was not received.
(d)	Rent Rs600: salary Rs900 and advertisement expenses Rs1,000 outstanding as on December 31, 2007.

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