Interest on security deposit to electricity board

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CA Ramsha Siddique (Querist)
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24 April 2012 sir, I am doing my articleship, i have come across a problem in relation to accounting. I need to ask you that in relation to interest recieved from an electricity board on security deposit( interest for Year 2005-2008, TDS deducted P.Y. 2011-12), which is adjusted against the bill. what will be the accounting for interest? whether it will be reduced from the bill amount, or treated as income of previous years, or if there is any other accounting treatment?

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)
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24 April 2012 Treat it as income for previous year as interest on Electricity deposit and credit to the P&L even though you deducted it from the the bill amount net effect is same. But treating it as separate transaction and identification more perfect and clarity. Eventhough deducted from the bill amount the accounting is not wrong and it is also acceptable. My suggestion is treat it as income for the Previous year and credit to the P&L Account as per this accounting entry is as follows.

1) on the date of payment of electricity charges or bill

Electricity charges a/c dr ***
To Interest on electricity deposit a/c(Excluding TDS Portion) ***
To cash/bank a/c ***
(Being Interest paid on electricity deposit after TDS deducted adjusted in the electricity charges and the balance amount paid by cash/cheque no:)

2) for TDS portion

TDS receivable a/c dr ***
To Interest on Electricity deposit a/c ***
(Being TDS deducted on payment of interest on electricity deposit)

Instead of above two entries following compound entry will possible.

Electricity charges a/c dr ***
TDS receivable a/c dr ***
To Interest on electricity charges a/c(including TDS Amount) ***
To Cash/bank a/c ***

OM SAI SRI SAI JAI JAI SAI

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