Journal Entry for Fixed Deposit

>> January 21, 2011


Question

What will be the entry for fixed deposit with bank by co. for 2 yrs and if loan has been taken on it and what will be the entry of interest given by the bank on F.D

Answer

There will be three journal entries of above transaction :

1. Journal Entry for Fixed Deposit for 2 years

Fixed deposit is that investment which has been done by you for getting interest earning. Bank gets your FD money and send it for giving loan to others and earn margin between interest received on this money and interest which is given to you by bank. So, this is your asset. Real account rule will apply on this asset. We also see that bank is personal account which is affected from this transaction.

Debit : Who is receiver of this money ( In personal account ) = Bank = Bank receives money in the form of FD

It means Fixed Deposit in Bank Account Dr.

Credit : What goes from your business ( In real account or asset account ) = Cash for investing money in secured area.

It means Cash Account Debit Cr.

FD in Bank Account Dr. XXXX

Cash Account Cr. XXXX


2. Journal Entry for loan which has been taken on your own Fixed Deposit

Loan is loan. It is your liability. But, it is secured loan. If you will not pay, your FD will not repaid to you until, you pay your loan to bank with its interest. Now, think which two account affects from it.

One is real account because you receive cash.

Other is personal account because bank gives you money in the form of loan.

So, remember the rules of double entry form.

Cash Account Dr. XXXX
Loan from Bank Account Cr. XXXX

3. Journal Entry of interest which is given by the bank on F.D.

This interest is source of your earning. So, it is gain of your business. I think it is in cash form

Debit = So, what comes in your business = Cash
Credit = which income increase in your business = Interest on FD in Bank

Now pass the journal entry

Cash account Dr. XXXX
Interest on FD in Bank Cr. XXXX

Related : What is public Deposit?





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1 comments:

bijoy salahuddin October 25, 2013 at 5:09 AM  

Thnak you for such a nice post.

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