Options for posting accrued investment income at your credit union

by. Cheryl Ehmann

Generally Accepted Accounting Principles (GAAP) require that any interest earned but not received at month-end be accrued in order to recognize the income in the appropriate accounting period.

The formula for determining the accrual is to simply multiply the principal balance times the annual interest rate, divide by 365 days in a year, then multiply by the number of days since the effective date of the last payment.

There are a couple of ways to handle the posting, however. Some credit unions choose to reverse the previous accrual at the end of the month and post all funds received directly to Investment Income, then make another accrual at month-end for whatever should be outstanding. For example, at the end of March $3,000.00 is accrued. On April 1, the $3,000.00 accrual is reversed, then on April 30 an accrual of $3,250 is posted. All payments received during the month are posted directly to income.

Other credit unions choose to record interest payments directly to Accrued Interest Receivable. This can be a little trickier, because you then have to account for any differences between what was actually accrued on an investment and what was received. For instance, if you had accrued $250.00 on the CD held at ABC Bank, but you only received $249.86, at the end of the month you would need to make an adjusting entry to debit Investment Income and credit Accrued Interest Receivable for the difference of $0.14. This can be very tedious, especially if you have an extensive investment portfolio.

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