Interest income: Definition, Explanation, Journal Entries and Example

Interest receivable entries offer insights into the performance of a company’s interest-bearing assets, enabling management to assess the profitability of lending and investment activities. This information can guide future investment decisions and evaluate whether current financial strategies align with overall financial goals. Recording interest receivable ensures that revenue is recognized in the correct accounting period, even if payment has not yet been received. This adherence to the accrual accounting principle allows companies to provide a true and fair view of their earnings, preventing both understatements and overstatements of revenue.

Is interest income a reliable indicator of a company’s financial health?

Average commercial deposits grew $5.5 billion reflecting growth in interest-bearing deposit balances. Average consumer deposits declined $2.4 billion due to lower brokered time deposits. Compared to the fourth quarter of 2023, average deposits increased $1.3 billion. Interest income is a reliable revenue stream, especially for financial institutions, where it often constitutes the bulk of income. For investors, understanding a company’s interest income is crucial because it affects both profitability and cash flow.

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The cash placed in these accounts provides a passive stream of income from interest, and that money is recorded on the income statement as interest income. In conclusion, interest revenue is an essential component of a company’s income statement. It is reported as a separate line item under the Non-Operating Income or Other Income section and flows through to the company’s Net Income. Understanding where interest revenue goes on the income statement is critical for investors, analysts, and business leaders to make informed decisions about a company’s financial performance and future prospects. Thus, the use of debits and credits in a two-column transaction recording format is the most essential of all controls over accounting accuracy. There are five main types of accounts in accounting, namely assets, liabilities, equity, revenue and expenses.

#1 – Income from Operations

Basel III standardized approach risk-weighted assets are based on the Basel III standardized approach rules and include credit and market risk-weighted assets. PNC elected a five-year transition provision effective March 31, 2020 to delay until December 31, 2021 the full impact of the CECL standard on regulatory capital, followed by a three-year transition period. Effective for the first quarter of 2022, PNC entered a three-year transition period, and the full impact of the CECL standard was phased-in to regulatory capital through December 31, 2024. In the first quarter of 2025, CECL will be fully reflected in regulatory capital. See the table below for the September 30, 2024, December 31, 2023 and estimated December 31, 2024 ratios. To calculate net interest income, you can use a straightforward formula that takes into account the principal amount, interest rate, and time period involved.

• As a result, we caution against placing undue reliance on any forward-looking statements.
• When an individual deposits money into a savings account, the bank pays them interest as compensation for keeping their funds with them.
• It is important to note that banks use what is called “fractional banking,” which means that only a part of customer deposit accounts can be used by the bank as lending funds.
• Examples include year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds, and stocks, bonds, virtual currency, real estate or other property sold at a profit.
• As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.

Why Would a Company Have Interest Income?

Information in this news release, including the financial tables, is unaudited. Yes, this type of income is typically taxable, affecting the company’s overall tax burden. Interest income is usually listed on the income statement as part of a company’s revenue. Finance Strategists has an advertising relationship with some of the companies included on this website. We may earn a commission when you click on a link or make a purchase through the links on our site.

Where is interest expense listed on the income statement?

All of our content is based on objective analysis, and the opinions are our own. This is because lenders want to know the ability of the company to generate revenue and profit, as well as its capacity to repay the loan. Income taxes are taxes imposed by governments on income generated by individuals and businesses within their jurisdiction. It segregates total revenue and expenses into operating and non-operating heads. Our AI-powered Anomaly Management Software helps accounting professionals identify and rectify potential ‘Errors and Omissions’ throughout the financial period so that teams can avoid the month-end rush.

Capital markets and advisory revenue declined $23 million primarily due to elevated third quarter underwriting activity. Card and cash management fees decreased $3 million reflecting the impact of credit card origination incentives, partially offset by higher treasury management product revenue. Lending and deposit services increased $10 million and included increased customer activity. Residential and commercial mortgage revenue decreased $59 million driven by elevated third quarter residential mortgage revenue, partially offset by higher commercial mortgage revenue.

Interest revenue is typically reported as a separate line item on the income statement, usually under the Non-Operating Income or Other Income section. From there, it flows through to the company’s Net Income, which is the bottom line of the income statement. Average deposits for the fourth quarter of 2024 of $425.3 billion increased $3.1 billion compared to the third quarter of 2024.

If an entity is in the business of earning interest revenue, such as a lender, then it should record interest revenue in the revenue section at the top of the income statement. Placing it here keeps readers of an entity’s financial statements from getting the impression that revenue from continuing operations is higher than is actually the case. As such, the latter approach is the more conservative treatment of interest revenue.

This adjustment is not permitted under generally accepted accounting principles (GAAP) in the Consolidated Income Statement. The taxable-equivalent adjustments to net interest revenue income statement interest income for the three months ended December 31, 2024, September 30, 2024 and December 31, 2023 were $30 million, $33 million and $36 million, respectively. The taxable-equivalent adjustments to net interest income for the twelve months ended December 31, 2024 and December 31, 2023 were $131 million and $147 million, respectively.

• Our solution has the ability to prepare and post journal entries, which will be automatically posted into the ERP, automating 70% of your account reconciliation process.
• Our 2024 Form 10-Qs included, and our 2024 Form 10-K will include, additional information regarding these Consolidated Balance Sheet line items.
• Interest income is a critical component of many companies’ financial statements, representing the earnings generated from interest-bearing assets.
• The illustration above comprehensively shows the different levels of profitability of XYZ Corporation.
• On the other hand, companies following the cash basis of accounting would record the interest revenue only when it has been received.
• See non-GAAP financial measures in the Consolidated Financial Highlights accompanying this release.

But most firms that show an interest expense on their income statement do so because they’ve borrowed money to fuel growth and to fund their operations. The following breaks down some items carrying interest, whether from income or expenses, that a company might report on its income statement, and what it might mean for the bottom line. Interest revenue is typically recognized when it is earned, following the accrual accounting method. It can directly impact a company’s profitability, financial statements, and tax obligations. By mastering the concepts discussed in this blog post, you can confidently manage and maximize interest revenue for your business.