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INTEREST AND DIVIDEND ON INVESTMENT

Investment is an asset of the firm. Funds of the firm may be invested outside in shares, debentures and securities of other companies. The firm will receive dividends on shares and interest on debentures, loan and other securities. Interest/Dividend received is undoubtedly an income, so it will be posted at the credit side of profit and loss account. If the interest/dividend has been received during the year in cash, the item will appear at the credit of Trial balance and will be posted at the credit side of profit and loss account only.

If interest on investment is due for certain months, it will be treated as accrued income. The item will appear in the adjustment and will be shown at two places in the final accounts. Outstanding interest on investment is the revenue of the current year w it will be credited. The value of investment will also increase with the amount of accrued interest. So investment account will be debited.

Interest on investment, if it is an item of adjustment will be shown at two places. These places will be credit side of profit and loss account and the assets side of the Balance sheet, where it will be added to the value of investment, appearing in the Trial balance.

Interest on investment will be shown at the credit side of profit and loss account only, if it is an item from Trial balance.