Recording Accrued Interest Shown on a 1099-OID

Online InvestingYou aren’t always paid the interest that you’ve earned. If you purchase a negotiable certificate of deposit (CD), for example, the bank issuing the CD may accrue the interest you’ve earned through the end of the year and then add this amount to the CD’s value. If you purchase a zero-coupon bond, you don’t receive periodic interest payments at all. Rather, the bond issuer accrues interest each year and then repays the bond and the total accrued interest at maturity

. Even though you aren’t paid interest, however, you need to record the interest you’ve earned because you need to report the accrued interest as taxable income. Fortunately, in most cases the bond issuer sends a 1099-OID form that reports the amount of accrued but not paid interest.

NOTE:

Bond issuers also report the amortization of original-issue discounts on 1099-OID forms. In fact, OID stands for Original Issue Discount. Because original-issue discounts effectively increase the annual interest earnings, you also need to record these amounts.

To record accrued interest, you actually record two transactions how to record a bond purchase when the purchase price includes accrued interest. This is what you do:

· Click the Easy Actions menu, click Record An Income Event, and then complete the Record Income dialog box.

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