Fixed deposits

In a Fixed Deposit, you put a lump sum in your bank for a fixed period of time at an agreed rate of interest. At the end of the period, you receive the amount you have invested plus interest.

Interest rates on fixed deposits are fixed when you open the deposit, and the rate depends on the term that you wish to hold it for.

How to record fixed deposits in Output Books?

Scenario 1 : An Organization made a Fixed deposit of Rs.1,00,000 with ABC Bank on 22 April, 2018 for 3 years. The rate of interest is 8% per annum and the maturity date is 22 April 2021.

Steps to follow :

1. Create account heads.
2. Record when fixed deposit is made.
3. Made entry for accrued interest on every installment.
4. Record final amount at the maturity of the deposit.

1. Create new Account heads

1.1.  Steps to create new chart of accounts:

• Go to Accounting > Chart of Accounts.
• Click New Account.
• Provide the name of new account head in Name
• Select the corresponding group for new account head in Group drop down.
• Click Save.

1.2. Account Heads

• Fixed Deposit A/C under the group Deposits(asset).
• Accrued Interest on FD A/C under the group Current Assets.
• Interest on FD A/C under the group Indirect Income.

2. Record when fixed deposit is made

At the time of the deposit[here 22nd April 2019], a journal entry should be made as follows:

• Go to Accounting > Journal Entry on the left side panel.
• Click New Journal.
• Select the Fixed Deposit account from the drop-down.
• Enter the deposit amount[here Rs.1,00,000] in the Debit column.
• In the next line, select ABC Bank account from the drop-down.
• Enter the same amount in the Credit column.
• Enter Notes for reference and
• Click Save.

3. Made entry for accrued interest

Interest accrued is interest earned by you in any case, even if it is still not in your hand.

Say, Interest earned in year 1 & 2 on a 3-year fixed deposit. The interest accrued to you in years 1 & 2 but gets paid to you at the end of third year once the fixed deposit matures.

Based on the tenure, record the interest accrued on every installment.

In case of TDS

TDS receivable arise when the interest from the bank is above the threshold limit of Rs.10,000. In such cases the following entry should be passed on every installment.

4. Record final amount at the maturity of the deposit

At fixed deposit maturity, we will receive the amount which includes interest.

In this example,

• Initial deposit amount is Rs.1,00,000.
• Accrued interest calculated for 3 years is (say) Rs.24000.
• The maturity amount is 1,00,000 + 24,000 = Rs.1,24,000.