Classified under advance income, Interest received in advance is unearned income that pertains to the following accounting period but is received in the current period. Such interest is not related to the current accounting period and the related benefits for such income are yet to be provided. HencRead more
Classified under advance income, Interest received in advance is unearned income that pertains to the following accounting period but is received in the current period. Such interest is not related to the current accounting period and the related benefits for such income are yet to be provided. Hence, it is a liability for the concern.
The treatment of such advance interest is based on the Accrual concept of accounting.
The journal entry for interest received in advance is:
Now suppose, a firm Star shine receives interest on loan of 5,00,000 @ 7% p.a. extended to another firm. In the current accounting period, Star shine receives 50,000 as interest, excess being advance for the following year. Then the following journal entries should be passed:
Cash received in form of interest is debited (Debit what comes in) and interest account is credited because of an increase in interest income (credit all incomes and gains).
Interest account is debited because we have to decrease the interest income since 15,000 relates to the next accounting year. Interest received in advance is credited because such interest of 15,000 is not yet earned and is a liability for the concern.
Classified under advance income, Interest received in advance is unearned income that pertains to the following accounting period but is received in the current period. Such interest is not related to the current accounting period and the related benefits for such income are yet to be provided. HencRead more
Classified under advance income, Interest received in advance is unearned income that pertains to the following accounting period but is received in the current period. Such interest is not related to the current accounting period and the related benefits for such income are yet to be provided. Hence, it is a liability for the concern.
The treatment of such advance interest is based on the Accrual concept of accounting.
The journal entry for interest received in advance is:
Now suppose, a firm Star shine receives interest on loan of 5,00,000 @ 7% p.a. extended to another firm. In the current accounting period, Star shine receives 50,000 as interest, excess being advance for the following year. Then the following journal entries should be passed:
Cash received in form of interest is debited (Debit what comes in) and interest account is credited because of an increase in interest income (credit all incomes and gains).
Interest account is debited because we have to decrease the interest income since 15,000 relates to the next accounting year. Interest received in advance is credited because such interest of 15,000 is not yet earned and is a liability for the concern.
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