Is interest income a debit or credit?
Sarah Martinez
Updated on December 31, 2025
Account Types
| Account | Type | Debit |
|---|---|---|
| INTEREST EXPENSE | Expense | Increase |
| INTEREST INCOME | Revenue | Decrease |
| INTEREST PAYABLE | Liability | Decrease |
| INTEREST RECEIVABLE | Asset | Increase |
What type of account is interest income?
Interest income is usually taxable income and is presented in the income statement. The profit or for the simple reason that it is an income account. Usually, the two categories in the income statement, namely “Income from Operations” and “Other Income” are listed separately.
How do you account for interest income?
Interest income is recorded within the interest income account in the general ledger. This line item is typically presented separately from interest expense in the income statement. Interest income is usually taxable; the ordinary income tax rate applies to this form of income.
Why do we credit interest income?
Interest Income Journal Entries Cash is debited for the receipt of the amount. An asset account is debited to increase it. Interest income is credited to recognize the income. It is an income amount, hence credited when recognized.
What is the normal balance for the interest income account?
Normal Balances of Accounts Chart
| Account | Type | Normal |
|---|---|---|
| Bank fees | Expense | Debit |
| Interest income | Revenue | Credit |
| Rent income | Revenue | Credit |
| Income tax expense | Expense | Debit |
Is interest expense an asset or liability?
Is Interest Expense an Asset? Interest expense can be both a liability and an asset. Prepaid interest is recorded as a current asset while interest that hasn’t been paid yet is a current liability. Both these line items can be found on the balance sheet, which can be generated from your accounting software.
What is difference between interest and interest expense?
First, interest expense is an expense account, and so is stated on the income statement, while interest payable is a liability account, and so is stated on the balance sheet. Second, interest expense is recorded in the accounting records with a debit, while interest payable is recorded with a credit.
What happens when interest coverage ratio is negative?
A bad interest coverage ratio is any number below 1, as this translates to the company’s current earnings being insufficient to service its outstanding debt. A low interest coverage ratio is a definite red flag for investors, as it can be an early warning sign of impending bankruptcy.
How do you find interest?
Simple Interest Formulas and Calculations: Use this simple interest calculator to find A, the Final Investment Value, using the simple interest formula: A = P(1 + rt) where P is the Principal amount of money to be invested at an Interest Rate R% per period for t Number of Time Periods.
What is a good interest burden ratio?
Generally, an interest coverage ratio of at least two (2) is considered the minimum acceptable amount for a company that has solid, consistent revenues. In contrast, a coverage ratio below one (1) indicates a company cannot meet its current interest payment obligations and, therefore, is not in good financial health.
