Accounting for fixed deposits

Could you please let me know how to account for fixed deposits?

These are amounts that gets locked in for a fixed period in the bank say 2 yrs/ 5 yrs etc and earns a interest for the said period, interest amount can be drawn monthly / quarterly/ annual or end of the term.

The deposit amount to be reflected in asset.

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Enable the Bank Accounts tab if you have not already. Create the fixed deposit as a new bank account under the Bank Accounts tab. Manager will automatically classify the account as an asset. Record the money you place into the fixed deposit account using an appropriate method. Probably, you will be transferring money from another account you already have, but you might be depositing a new contribution of capital.

Make sure you have created some type of interest income account. This might be a general account for all interest or you could create a specific one for the fixed deposit. As interest is earned, record it appropriately. If the interest is credited by the bank to the fixed deposit, use the Receive Money function under that account and credit interest income. If it is paid separately, you will need to Receive Money in whatever bank account you allocate the interest to, still crediting interest income. How often you do this will depend on how often you receive statements or the bank pays interest. If you receive no statements or interim payments, good accounting practice should reflect the interest you have accrued and could withdraw. But if the terms of the fixed deposit will not allow withdrawal of interest until the end of the term, you might legitimately delay accruing the interest until that time. That is something on which you should get advice from your accountant.

So far as I know, Manager has no ability to automatically calculate accrued interest.

I believe that there should be an asset account created for this transaction and not necessary a bank account, because this is a financial instrument (INVESTMENT).

I would not necessarily disagree with @Abeiku. After all, a bank account is an asset account, but of a special type that–in Manager–makes it very easy to spend, receive, and transfer money. I recommended creating a bank account not only for that reason, but because the fixed deposit would normally be at a bank. The choice might depend on how often interest transactions will occur. If interest is paid only one time at the end of the term, a normal asset account would be just as convenient. If paid monthly, a bank account would be easier. Personal choice. Both would be financially correct.

I have some fixed deposit accounts maintained with bank. I want to create Fixed Deposit Group under cash accounts and would like to group FDs under this account. Is it possible to do?

As I need to know total FD at a glance.

You have a couple choices. You can create a cash account; call it Fixed deposits, and it will be included within Cash & cash equivalents by default. Then, you would have to drill down in Cash Accounts to see the fixed deposit component.

The other alternative, giving you immediate fixed deposit visibility on the balance sheet, is to create a custom control account called Fixed deposits. Assign it to the Assets group. Indicate it is made up of cash accounts. Create individual cash accounts for the various fixed deposits and assign them to the Fixed deposits control account. The procedure is almost identical setting up credit cards as liability accounts:

The only difference is that you assign the custom control account to Assets instead of Liabilities.

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