T-Bill, Splitting Interest Income and Return of Capital

Woody800

I followed previous information in setting up an Investment Account to record/track T-Bill transactions, in doing so I ran into a problem in splitting Interest Income and Return of Capital.

At the moment T-Bills are purchased at a discount. In my case at maturity I setup reinvestment and at first maturity/reinvestment not only did I receive interest income but because the reinvestment discounted purchase price was less than the previously matured purchase price, the difference between the two was returned (return of capital). I have no way to track Interest Income separately. Both are deposited in my bank account. Is there a solution to my problem.

Tom Young

"I have no way to track Interest Income separately."

NO, that's not correct. When you record the maturity of the bond you record the interest income in the Treasury Direct Account. If you don't record that interest there and only use your original cost as "proceeds" of a sale - at no gain or loss - then you've only accounted for $39,500 of cash. You need to record the interest in the investment Account or your cash in Quicken won't be properly stated. If you send that interest to your checking account, that's simply a transfer of cash from one account to another account.

"not only did I receive interest income but because the reinvestment discounted purchase price was less than the previously matured purchase price, the difference between the two was returned (return of capital). I have no way to track Interest Income separately. Both are deposited in my bank account. Is there a solution to my problem."

Of course you can make a distinction. You've accounted for the interest over in the Treasury Direct Account, and the extra $100 is, essentially, a "refund" because you've because you've purchased a T-Bill that costs less then your first T-Bill.

Using your original situation of a $39,500 purchase with a maturity of $40,000, the original accounting should be all in order. That is, at maturity you've recorded the maturity at no gain or loss and recorded $500 of interest income and have $40,000 sitting in your Treasury Direct Account.

Let's say the new replacement bond only cost $39,400 with a maturity of $40,000.

In this case the treasury sends you $600, that you deposit in your checking Account.

Accounting entry for maturity:

Debit (increase) Cash in bank $600
Credit (decrease) Cash in Treasury Direct Account

This is a Transfer, leaving you with $39,400 in the Treasury Direct Account

Then use the $39,400 in the Treasury Direct Account to buy the new bond.