How to Record Interest Income in QuickBooks

To record interest income in QuickBooks, post the interest your bank paid to an Other Income account named Interest Income, dated the day it hit the account. Do not lump it into your sales revenue, because interest is not operating income and mixing the two distorts your gross profit. In QuickBooks Online you can enter it right on the reconciliation screen or as a bank deposit; in Desktop you enter it during reconcile or with a Make Deposits entry. The bank reports this amount to you and the IRS on Form 1099-INT, so your books need to match it.

Interest shows up as a small credit on your bank statement, often on the last day of the month, and it is one of the lines people miss when they import transactions. If you are working from PDFs, convert the bank statement to QuickBooks with the tool at the top of this page so the interest line comes in with everything else, then categorize it as described below.

What type of account is interest income in QuickBooks?

Interest income is an Other Income account, kept separate from your regular sales revenue. When you set up the account in your chart of accounts, choose the account type Other Income (in QuickBooks Online) or Other Income (in Desktop) and name it Interest Income. This placement puts it below your operating income on the profit and loss, so it does not inflate the gross profit you earn from actually running the business. Interest is money your cash made sitting in the bank, not money you earned from customers, and the reports should show that distinction.

If you earn interest from more than one source, such as a business savings account and a money market, one Interest Income account is usually enough; you can see the detail by account in the transaction list. Keeping it in Other Income also makes it easy to hand your accountant the exact figure they need to tie to the 1099-INT at year-end.

How do I record bank interest during a reconciliation?

The cleanest way is to enter the interest right on the reconciliation screen, which both records the income and clears the line in one step. When you reconcile the account in QuickBooks Online or Desktop, the beginning screen has a field for interest earned; type the amount and the date, and select your Interest Income account. QuickBooks posts a deposit for that amount and marks it as cleared, so it never shows up as an unreconciled difference. This is the method Intuit designed for exactly this purpose, and it keeps the entry tied to the statement it came from.

If you already imported the interest as a bank transaction, do not also add it during reconciliation, or you will double it. In that case, just categorize the imported line to Interest Income and match it. Use the reconciliation field only when the interest is not already in your books.

How do I record interest income without reconciling?

If you would rather enter it directly, record a bank deposit to the account that earned the interest and code the deposit to Interest Income. In QuickBooks Online, use New, then Bank Deposit, choose the account, add a line with Interest Income and the amount, and save. In Desktop, use Banking, then Make Deposits, and code the line the same way. This is handy when you want the interest in the books before you sit down to reconcile, or when you are entering a batch of month-end items at once.

Whichever method you use, enter the interest on the date the bank credited it so it falls in the right period. A December interest payment recorded in January would shift income into the wrong year and could throw off the 1099-INT match, so the date on the entry should equal the date on the statement.

Is interest income taxable, and where does it go on my return?

Yes, business interest income is taxable, and it flows through your profit and loss into your business tax return as other income. For a sole proprietor it lands in the business's income picture, and your bank sends a Form 1099-INT for any account that paid $10 or more in interest during the year. Because both you and the IRS get that form, your recorded Interest Income for the year should reconcile to the total on the 1099-INT. If the two do not agree, usually a month's interest was missed or coded to the wrong account.

Keep in mind that interest is reported on the cash you actually received during the year, so a small December amount posted after your statement closes still belongs in that year if the bank credited it in December. Matching your books to the 1099-INT box for box is the simplest year-end check.

How do I handle interest across several accounts?

Record each account's interest to the same Interest Income account, dated to each account's statement, so the total ties to the sum of your 1099-INT forms. A business that keeps a checking account, a savings account, and a money market will get interest on more than one and possibly a separate 1099-INT for each. Posting all of them to one Interest Income account keeps the profit and loss simple while the underlying transactions still show which bank account each amount came from. When you total the year, that one account should equal the combined interest reported to you.

If you manage several accounts and want to check the interest lines quickly before you post them, you can convert each statement to a spreadsheet and total the interest column across the year, then compare it to what you recorded in QuickBooks. It is a fast way to make sure nothing slipped through before you close the books.

What is the difference between interest income and interest expense?

Interest income is money the bank pays you on deposits, while interest expense is money you pay the bank on loans and credit lines, and they live on opposite sides of the profit and loss. Do not net them against each other. Record interest earned to Interest Income under Other Income, and record interest you pay to Interest Expense under expenses. Keeping them separate gives you an accurate view of what your cash earns versus what your borrowing costs, and both figures matter to a lender or an accountant reading your statements.

Once interest income is posting to its own account and reconciling to the statement, it stops being the mystery deposit that breaks a reconciliation. For the flip side, see how to record a loan or line of credit so the principal and the interest you pay are split correctly too.