How to Account for Certificates of Deposit

by Kaye Morris ; Updated September 26, 2017
Tax paperwork

When a business accumulates a decent amount of operating capital, the business owners may choose to deposit the extra funds in a certificate of deposit in order to gain higher interest rates on the funds while they are not needed for normal business operations. Even if the certificate of deposit is serviced at the same bank as the business's checking and/or savings accounts, you should account for the certificate of deposit separately in your accounting records.

Create a certificate of deposit account in the assets section of your general ledger.

Create an interest earned account in the income section of your general ledger. If you separate operating income from non-operating income on your general ledger, then create the interest earned account in the non-operating income/expense section of your general ledger.

Record the funding to open the certificate of deposit as a reduction to the bank account the money was deducted from. Generally accepted accounting principals (GAAP) refers to a decrease in an asset account, such as checking or savings accounts, as a "credit."

Record the deposit of the funds as an increase to the certificate of deposit account. GAAP refers to an increase in an asset account, such as the certificate of deposit account, as a "debit."

Record interest earned on the certificate of deposit as an increase (debit) to the certificate of deposit account and an increase (credit) to the interest income account. GAAP considers an increase to an asset account a "debit" and an increase to an income account a "credit."

Tips

  • If you are not certain how to properly account for certificates of deposit, consider hiring an accounting professional to assist you with setup.

References

  • “Principles of Accounting”; A. Douglas Hillman, Richard F. Kochanek, Corine T. Norgaard; 1991

About the Author

Kaye Morris has over four years of technical writing experience as a curriculum design specialist and is a published fiction author. She has over 20 years of real estate development experience and received her Bachelor of Science in accounting from McNeese State University along with minors in programming and English.

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