You arenâ€™t always paid the interest that youâ€™ve earned. If you purchase a negotiable certificate of deposit (CD), for example, the bank issuing the CD may accrue the interest youâ€™ve earned through the end of the year and then add this amount to the CDâ€™s value. If you purchase a zero-coupon bond, you donâ€™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 arenâ€™t paid interest, however, you need to record the interest youâ€™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.
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:
Â· Click the Easy Actions menu, click Record An Income Event, and then complete the Record Income dialog box.