Reconcile bank interest earned with interest credited

Obtain the account agreement and detailed statements showing the interest period, rate basis and crediting method. Interest may be credited to the same account, transferred elsewhere or retained until a contractual event. The FDIC's certificate-of-deposit guidance notes that interest terms differ across products. Use the actual agreement rather than assuming every interest-bearing balance pays monthly cash.

Separate the bank's credited amount from any accrual calculated for financial reporting. Ask the accountant to establish the appropriate recognition policy for the instrument and reporting framework. A bank statement and an accrual schedule answer related questions, but their amounts need not be identical on every month-end date.

Start with the interest receivable or accrual brought forward, add the amount recognized for the period and deduct amounts credited or otherwise settled. Record adjustments separately with their evidence. Reconcile the resulting balance with the applicable account terms and statement detail.

Keep principal transfers out of the income calculation. A large receipt from a maturing deposit may include both principal and interest. If a prior accrual exists, the cash credit may settle that receivable rather than create the same income again. Review the complete entry with the accountant before applying an automatic bank rule.

Check whether the period contains a rate change, different eligible balances, a changed day-count basis, a fee or an early closure. Confirm the bank's calculation method where necessary. A lower credit than last month does not by itself show a bank error, particularly when balances or crediting periods changed.

Where the bank supplies a correction, preserve both the original and revised advice. Record any clawback or additional credit against the relevant period under the accountant's policy. Avoid silently replacing a previously reviewed calculation with a new number that leaves no explanation for the movement. Give each correction its own reference and link it to the bank posting that eventually settles the difference.

For foreign-currency accounts, reconcile the interest in the account's native currency before translating it into the reporting currency. Keep the interest amount and exchange effect separately explainable. A reporting-currency increase in the account balance may reflect more than the interest credited.

Collect any tax information statements issued by the bank and compare their account identifiers and reported categories with the ledger schedules. IRS instructions distinguish types of interest reporting and contain recipient exceptions. A missing information form therefore should not be used as evidence that the account earned no income.

Give the tax preparer a bridge between the books, cash credits and information statements, with timing or classification differences explained. Let the preparer determine the applicable tax treatment. Do not change financial-reporting accruals solely to make the ledger equal one form without understanding why the measures differ.

Retain the final schedule with the bank reconciliation and carry the supported closing balance forward. Assign ownership of future rate or account-term changes so the calculation is refreshed when the agreement changes, rather than only when a year-end discrepancy appears.