How To Include Certificates Of Deposit In Your Business
Once your business has generated a moderately substantial amount of operational income, you may want to consider depositing these additional funds into a certificate of deposit. This will allow you to take advantage of strong interest rates as the funds won't be tied up in the everyday functioning of your business. In the event that the certificate of deposit is with the same banking establishment handling the company’s checking or savings accounts, insist that it is accounted for separately.
This is not a complex task by any means and can be accomplished in a few simple steps.
Have a certificate of deposit account created under the assets portion of your general ledger.
Have an interest earned account created in the income portion of the same ledger. Separating operational income from non-operational income is particularly important.
Recording the transaction from your account into the actual certificate of deposit account is the next step. Remember what the generally accepted accounting principles (GAAP) have to say about this matter; decreases in an assets account (e.g. checking or savings account) will be referred to as credits and increases in an assets account (e.g. certificate of deposit in this case) will be deemed debits.
Have the interest acquired recorded as a debit in the certificate of deposit account and as a credit in the interest earned account.