A bank making up monthly earnings and expense statements would obviously not show the actual situation if interest on time loans were credited to the earnings account only on the maturity of the loan, or at three months' intervals. The monthly earnings statement should show the actual amount of interest earnings, irrespective of the time of payment. The only proper way to accomplish this is to accrue daily the interest on loans. A common and desirable way of doing this is to classify on an auxiliary accrual sheet all loans made and paid each day by rate so as to obtain the accrued figures. The accrued sheet usually itemizes "loans made" on one side and "loans paid" on the other. The following is a summary of the detail which might be shown on such a sheet:

Total

4%

5%

6%

7%

Amt. of Loans close of 6/29

$105,000

$40,000

$65,000

Loans made 6/30

25,000

10,000

15,000

130,000

$50,000

80,000

Loans paid 6/30

25,000

5,000

20,000

Loans close 6/30

$105,000

$45,000

$60,000

5%

6%

Total interest credited for one day on June 30

$ 6,210

$ 2,250

$ 3,690

$ 16.25

$ 6.25

$ 11.00

The foregoing shows in simplified form how the interest on all loans in this classification for one day would be arrived at. At the close of each day the following entries would be made:

Debit: Interest Accrued on Loans ..............

$16.25

Credit: Interest earned

$16.25

If A. & Company pays its three months' loan on July 1, on which the interest amounts to $10, the following entries would be made, ignoring for the moment the entries for the loan itself:

Debit: Cash...............

$10

Credit: Interest Accrued on Loans .............

$10

It must be borne in mind that interest on A. & Company's loan has been accrued for every one of the days it has been on the books, so that the $10 has by daily accrual process accumulated in the asset account, interest accrued on loans, before the day on which payment was made, namely July 1.