Interest on accounts

1

In light of recent discussions which I do/did not intend to derail, I thought I would come out and post an example as a separate question.

In this scenario I am talking specifically about credit cards and this may differ to loans (we’ll get there later, I promise)…

This is currently how I deal with my credit card*.

  • I use the credit card, it is an expense, usually through the purchase invoice and make payment route
  • I make a credit card payment, it is an inter-bank transfer from one account to another
  • When interest is charged to the account, I create a payment and charge it to a “bank – interest charged” expense account

I could never begin to run a spreadsheet and calculate daily interest on an account purely because I think that is overkill and error prone. Especially when the financial institution provides that interest on the statement.

Looking only at credit cards and similar cash accounts (at this time):

  • is this how other people do it?
  • Is there a better way?

* I say currently because I am always open to suggestion and as with most things manager, it has very much been a learning experience and I am not an accountant/bookkeeper, meaning, I have had to apply processes based on my own logical, which I accept may not always be logical) :slight_smile:

2

Yes. The exact interest amount has been calculated for you by the credit card company/bank. And the amount of the inter account transfer is also known—the sum of transactions before the interest was added.

No. The two transactions are necessary in this case, because one is a direct transfer between two of your bank accounts (probably checking and credit card), while the the second is a payment directly to the credit card company/bank. There is no way to combine the interest payment on the credit card with movement of money between two of your own pockets.

3

Yep. Exactly the same as you. The interest shows up on our statement as a line item which then is added to the balance of the card. We just manually post the interest on the date listed on our statement.

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