How to Record Interest Income in QuickBooks Desktop/Online?

Accurate classification and recording of interest income are essential for businesses to maintain precise financial records, comply with tax regulations, and make informed decisions. QuickBooks, whether Desktop or Online, provides efficient ways to manage and track interest income, ensuring it is reflected properly in your financial statements.

Interest income is typically earned from various sources, including bank accounts, investments, or loans your business has made. It is crucial to categorize this income correctly under appropriate accounts, as this impacts the accuracy of financial reporting, business decisions, and tax filings.

This page will guide you through the steps of recording interest income in both QuickBooks Desktop and QuickBooks Online, covering essential details like account setup, categorization, and best practices for managing interest income effectively. By following these steps, you can ensure that your financial records are accurate, complete, and compliant with accounting standards.

What is interest income in accounting?

In Accounting, interest income is usually taxable income that refers to the money earned by an individual or business from lending funds. This can be through depositing money in a bank account, purchasing certificates of deposit, or earning interest on loans provided by the business.

In QuickBooks Desktop or Online, you can easily record interest income using the Bank Deposit feature. This helps track interest earned from savings accounts, investments, or loans your business has made.

There are two ways to record interest income in QuickBooks:

1. Through the Reconciliation page: This allows you to directly record interest during the reconciliation process.
2. Creating a new interest account: This method lets you set up a specific account dedicated to tracking interest income.

Both options ensure that your interest earnings are accurately reflected in your financial records.

What Are the Different Types of Interest Income?

Interest income typically falls into three main categories: Bank Interest Income, Investment Interest Income, and Other Income. Here’s a brief explanation of each:

1. Bank Interest Income:

This refers to the interest earned on deposits held in savings accounts at banks or other financial institutions. It’s the income you receive as interest on your money that is stored in these accounts over time.

2. Investment Interest Income:

This is the income generated from various investment activities, such as dividends, interest from stocks, bonds, certificates of deposit or other securities. It requires accurate tracking and calculation, often managed through financial software.

3. Other Income:

This category includes interest from various other sources like mutual funds, bonds, or other interest-bearing assets. It’s essentially any interest income that doesn’t fall into the first two categories.

How to Record Interest Income in QuickBooks Desktop?

To record interest income in QuickBooks Desktop, use the Make Deposits feature.
Go to Banking > Make Deposits, create a new interest account, enter details, select the bank account, and save.

Follow the mentioned steps below to record interest income:

Step 1: Navigate to Make Deposit

• First, go to Banking, then choose the Make Deposits option.

Sep 2: Create a New Interest Account

• Now, choose the New option to make a new interest account.

Step 3: Select the Add New Option

• Under the From Account menu, choose Add New from the drop-down section.

Step 4: Click the Other Account Types Option

1. Click on the Income radio button below the Categorize money your business earns or spends option.
2. Next, click on the Other Account Types radio button.
3. Then, choose the Other Income option below the drop-down menu and tap on the Continue button.

Sep 5: Enter the Name of the Bank

• Now, enter the Bank’s name on the Add New Account page, fill out the relevant information, and choose the Save & Close button.

Step 6: Choose the Bank Account

• In the Make Deposit page, choose the Bank account below the Deposit to drop-down menu.

Step 7: Enter the Received Amount

• Choose the newly formed account type below the FROM ACCOUNT drop-down menu.

Step 8: Enter the Received Amount

• Then, enter the received amount below the AMOUNT section and fill out the necessary information in the required fields.

Step 9: Save the Changes

• Once you’re satisfied, choose the Save and New option.

By following these simple steps, you can effectively track and record the interest you earned from income in QuickBooks Desktop.

How to Record Interest Income in QuickBooks Online (QBO)?

To record interest income in QuickBooks Online, create an interest account under Chart of Accounts as “Other Income.” Then, use the Bank Deposit feature: select + New > Bank Deposit, choose the customer, and enter the details. Save to complete the process.

Following the step-by-step information below:

Step 1: Navigate to the Chart of Accounts

• First, go to Transactions, then choose the Chart of Accounts option.

Step 2: Create a New Interest Account

• In the Chart of Accounts, click the New button to create a new account.

Step 3: Choose the Other Income Option

1. After clicking New, you’ll be prompted to choose the Account Type.
2. From the drop-down list, select Other Income. This option is ideal for income sources that are not part of your core business activities, such as interest income or other non-operating income.
3. In the Detailed Type drop-down, choose option “Interest Earned“.

Note: The “Interest earned” option in QuickBooks Online (QBO) is available only when bank accounts are not connected to online banking. Since both your checking and savings accounts are already linked, the option no longer appears during reconciliation.

Step 4: Save the Changes

1. Below the name column, enter any applicable name, then choose Save and Close.
2. After this, create a bank deposit to post the amount.

Once done, Follow the steps mentioned below to create and record a bank deposit:

Step 5: Navigate to +New Option

• First, choose the “+ New” option.

Step 6: Navigate to Bank Deposit

• Then select “Bank Deposit”.

Step 7: Choose the Customer Name

• Now, below the “Add funds to this Deposit“, choose the name of the customer who has paid the interest.
• Then choose the “Other income” account that you’ve created.

Step 8: Save the Changes

• After that, enter a description, payment method, and amount, then choose the Save and New button.

Note: From the Dashboard, you can see that the Deposit was previously recorded in the bank account.

Note: These above steps also work for tracking the interest earned for your Savings account. You can follow these steps:

Best Practices for Recording Interest Income in QuickBooks

The manage interest income in QuickBooks effectively, reconcile accounts frequently, track interest rates, and adjust categorization rules. This ensures accurate reporting, optimal income recognition, and efficient financial management.

Consider the following points below to manage interest income in QuickBooks:

1. Reconcile Your Accounts Frequently

Account reconciliation is the process of comparing monthly statements with the recorded accounts and then reconciling any difference that may exist. This process:

• Aids in making efficient adjustments for interest amounts and changes in rates.
• Improves measurement of interest rates to increase income earnings.
• This will facilitate accurate accounting of interest income, which is necessary for sound financial decision-making.

When done often, it is easier to update the accounts and deal with any changes that occur in the economy.

2. Keep Track of Interest Rates

It is also important to constantly check the interest rates in order to control it and report income statements from interests properly. QuickBooks allows businesses to:

• Allocate, recognize, and report income correctly.
• Ensure to adapt to rate changes within a short time to avoid differences.
• Prepare reasonable accounting figures that give the true picture of analyzed revenues.

Such adjustments secure financial credibility with respect to interest rates and prevent possible inaccurate entries in the accounts.

3. Analysis and Adjust Your Categorization Rules

This shows that it is helpful to periodically review and update the rules for categorization in order to improve the efficiency of interest income management. This approach:

• Brings out the alignment of the financial categorization with the current standard and instruments.
• Enhances accuracy in financial reporting by presenting clear and understandable information on incomes.
• Raises the adequacy of financial control, allowing the right decisions concerning investments and projects to be made. 

By continuing to make consistent categorization and adjustments, the existing economic likelihoods for business increase the reliability of the existing economic records and the existing financial management.

Recording interest income in QuickBooks is crucial for correct bookkeeping and financial management. This process involves categorizing income connected to investment activities or interest earned from bank accounts.

The Bottom Line

Adopting these best practices in QuickBooks leads to thorough management of interest income, which achieves developmental financial control. Recording interest income in QuickBooks is crucial for correct bookkeeping and financial management. This process involves categorizing income connected to investment activities or interest earned from bank accounts.

FAQs:

How do I categorize interest payments in QuickBooks?

To categorize interest payments in QuickBooks, follow these simple steps:

1. Click on the Gear icon at the top right corner to access the settings menu.
2. From the dropdown, select Chart of Accounts under the Your Company section.
3. Click on the New button to create a new account.
4. In the Account Type column, select Other Income.
5. For the Detail Type, choose Interest Earned.
6. Under the Name column, enter a name that best describes the interest payment (e.g., Interest Income).
7. Click Save and Close to finalize.

How Do I Record Interest Earned on Loans in QuickBooks?

To record interest earned on loans in QuickBooks, follow these steps:

1. Set up a liability account to track your loan and its payments, including the interest.
2. Record loan repayment:
   • Click on the + New button.
   • Choose Check.
   • If you’re writing a check, enter the check number. For direct withdrawals or EFTs, enter “Debit” or “EFT” in the Check # field.
3. In the Category details section:
   • Select the liability account for the loan.
   • Enter the payment amount.
4. On the next line, choose the expense account for the interest and input the interest amount.
5. If applicable, add any extra fees on additional lines.
6. Click Save and close.

This way, QuickBooks will accurately record both the loan payment and the interest separately.

How to calculate interest income?

Here’s an example of how to calculate interest income using the formula: (Interest Income=Principal Amount × Interest Rate × Time Period)

Where is the Interest Income Presented?

Interest income is typically considered taxable and is presented in the income statement because it falls under the category of income. Since interest income is a source of revenue, it is reported along with other forms of income in the financial statements.

How to Adjust Interest Income in QuickBooks for Accuracy?

Adjusting interest income in QuickBooks is important to ensure your financial records are accurate. Here’s a step-by-step guide on how to adjust interest income:

1. Log in to QuickBooks

• Open your QuickBooks account and go to your dashboard.

2. Go to the Chart of Accounts

1. Click on the Gear icon in the upper right corner.
2. Select Chart of Accounts under the Your Company section.

3. Go to the Bank Deposit to Adjust for Any Errors or Changes

1. Go to the Bank Deposit or Transaction List.
2. Find the interest deposit transaction you need to adjust.
3. Click on the transaction to open it and make the necessary changes to the amount or other details.
4. Save the changes.

Disclaimer: The information outlined above for “How to Record Interest Income in QuickBooks Desktop/Online?” is applicable to all supported versions, including QuickBooks Desktop Pro, Premier, Accountant, and Enterprise. It is designed to work with operating systems such as Windows 7, 10, and 11, as well as macOS.