Question

Abbott Company completed the bank reconciliation and needs to record the $10 earned in interest from the bank balance. The journal entry to record this transaction would be:

Answer 1

Answer: The answer is Debit to Cash $10, Credit Interest income $10 OR Debit Cash $10, Credit Interest receivable $10.

Explanation: Having a $10 in the bank balance that relates to earned interest income means that it has not been recorded in the books (general ledger) and it also means the cash had already come into the bank statement. To record this in the general ledger, we need to debit cash (to reflect the inflow) and credit interest income or interest receivable. If the interest was already accrued for, you credit interest receivable. If not (e.g., some one-off interest), you credit interest income.