Time deposits and time certificates of deposit should likewise be handled on an accrued interest basis, especially if they are considerable in amount. No new principle will be encountered in accruing interest on these deposits. The problem is simply one of ascertaining the amount of interest accrued on them during a given month and setting it up as follows:

Debit: Interest Paid on Time Deposits

Credit: Accrued Interest Payable on Time Deposits

The debit is, of course, a charge to a loss account, that is, to an account which would be wiped out through the closing process. The credit becomes a liability which would not be affected by the closing of expense and earning accounts. When interest is paid on deposits of a time character, the entries are:

Debit: Interest Payable on Time Deposits Credit: Cash or Credit: Customer's account

These accrual entries were based on the assumption that the earnings and expense statement is made up monthly, which is more desirable than semi-annually because it is felt that statements of earnings and of expenses should be brought to the attention of the officers more frequently than twice a year.