Ashish Tibrewal (job) (80 Points)
08 September 2010
i gav my 1st round of intrvw in PWC...........
i was asked a questation....
wt will b th accounting enrty of "ACRUED INTREST DUE".........
in a hurry i gave th answr as
P/L a/c Dr.
to acrud intrest due....
bt nw i thnk thr will b no entry.......please correct me if i m wrong....
Faiz Ahmed
( Article Trainee)
(1731 Points)
Replied 08 September 2010
Accounting Entry for Accrued Interest:-
Accrued Interest A/c Dr.
To Interest A/c
(Being accrued interest of Rs... accounted for)
Show Accrued Interest in B/S(Assets) and add with Interest A/c in P&L A/c(Cr. Side).
This Accrued Interest will become DUE in future period. Since it has already been accounted in previous accounting year financial statements , it will not be accounted again as income.
However," Accrued interest Due" recieved on account of such due will pass through bank A/c .
Bank A/c Dr.
To Accrued Interest A/c
(Being Accrued Interest due and recieved)
I have given reply considering the distinction between the terms-- Accrued & Due
Faiz Ahmed
( Article Trainee)
(1731 Points)
Replied 08 September 2010
Kindly post such queries in appropriate forum so that it is quickly answered by anyone.
Categorize and Sub Categorize. While posting topics kindly Categorize and Sub Categorize properly so that the information is distributed relevantly.
Ashish Tibrewal
(job)
(80 Points)
Replied 08 September 2010
ohk...thanx for th rply....
so we conclude tht no entry will be passed....
Faiz Ahmed
( Article Trainee)
(1731 Points)
Replied 09 September 2010
For Accrued Interest Due....... Entry will be passed if its recieved as given :-
Bank A/c Dr.
To Accrued Interest A/c
(Being Accrued Interest due and recieved)
Ashish Tibrewal
(job)
(80 Points)
Replied 09 September 2010
see u r changing th question.......i asked wt will br th entry of acrud intrest due......not of acrud intrest due and recived....
and tell me 1 mor thng hw do come to knw thts its n icome...it could b an expense as well...
Faiz Ahmed
( Article Trainee)
(1731 Points)
Replied 09 September 2010
I have said answer to your question indirectly by replying comprehensively.
Straight forward answer to your question.... There will be no entry when Accrued interest becomes due.
Regarding your income/expense confusion--- Word Accrued is generally used in case of income whereas for expense we use Outstanding .
Hope now you got the answer.
Ashish Tibrewal
(job)
(80 Points)
Replied 09 September 2010
not fully satisfied by ur view tht acrud is genrly used for income.....
Faiz Ahmed
( Article Trainee)
(1731 Points)
Replied 09 September 2010
I don't know what is your definition of word Accrued. May I know your view regarding the word Accrued??
As per Webster Dictionary---
Hope you got my answer.
Ashish Tibrewal
(job)
(80 Points)
Replied 09 September 2010
Faiz Ahmed
( Article Trainee)
(1731 Points)
Replied 09 September 2010
Text of above link;--
1.Interestthat is due on abondor otherfixed income securitysince thelastinterestpaymentwas made. This often occurs for bonds purchased on thesecondary market, since bonds usuallypayinterest every sixmonths, but the interest is accrued by thebondholderson a day-to-day basis. When a bond issold, thebuyerpays thesellerthemarket priceplusthe accrued interest, for which the buyer will be reimbursed when theissuerpays next pays interest. Accrued interest is calculated on a 30-day month/360-day year forcorporate bondsandmunicipal bonds, and on actual-calendar-days forGovernment bonds.Income bondsand bonds indefaulttradewithout accrued interest. When calculating accrued interest on a bond that is being sold, it is conventional to consider the timeperiodfrom the most recent payment up to, but not including, the date on which the bondsaleis settled.
I am sorry the above text could not be copied properly.
My question to you.
1-- who is bondholder in the above text?
My answer to above question--
Bondholder is a person who has invested in bonds and expects interest as and when it becomes due. In the above text before it is sold , the interest will accrue to the bondholder and not to company. For company its a current liabilty and for bondholder its an asset.
Even now if you have not understood, read that text carefully and then conclude.
Ashish Tibrewal
(job)
(80 Points)
Replied 09 September 2010
Faiz Ahmed
( Article Trainee)
(1731 Points)
Replied 09 September 2010
The term Accrued is used in relation to any income as specifically mentioned in Webster Dictionary.
Have you ever used Accrued salary when your firm has not paid to employees?? Employee will use Accrued Salary and you as an employer will use Outstanding Salary.
Ashish Tibrewal
(job)
(80 Points)
Replied 09 September 2010
Faiz Ahmed
( Article Trainee)
(1731 Points)
Replied 09 September 2010
Prima facie, that word without any other sentence prefixed or suffixed will be construed as an income by any reader.
Even if i assume for 1 second and not more then, that "Accrued Interest Due" is used in relation to expense, it will be treated as a liabilty and relevant entries will be passed. The question of NO ENTRY will be ruled out. Entries will be passed from the angle of expense whether you have created provision for the said item or not.
Can you please elaborate on the exact question posed to you in interview??
CAclubindia
