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Accrued interest is an expense in Quicken

MichaelCortese

I can't change it to not be an expense. Accrued interest is not really an expense. It is an asset (receivable). I don't like accrued interest I paid on a bond showing up like money I spent on groceries or a pair of socks.

Is there a way to change this in Quicken? If I make my own asset category for accrued interest will that mess up things (like tax reporting)?

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Tom Young

Of course "over time" everything sorts itself out, the "expense" and the "income" (full coupon) do give a correct "bottom line", but you're right it's not an expense, it's actually a reduction of the income you will receive in the future.

Back when I was purchasing bonds I created a "security" titled "Accrued Interest on Bond Purchases" and "bought" that security for the amount of accrued interest I paid. Then when the coupon date rolled around - sometimes several months after the purchase of the bond - I "sold" that security for no gain or loss, increasing cash, and then recognized the interest income as the difference between the actual cash received and the amount that I received" on the "sale" of the Accrued Interest "security."

That routine gets everything sorted out correctly.

If you're active in bond buying then you might create a unique accrued interest security for each bond, just to keep it all straight.

q_lurker

If you use the BuyBond widget (Enter Transactions button), for the Accrued income data, Quicken creates a MiscExp transaction with the category _Accrued Int which is an Income category with a Sch. B interest tax line assignment. The entry then shows as negative income. Seems to work out ok for me.

MichaelCortese

https://community.quicken.com/discussion/comment/20406831#Comment_20406831

That's what I am using. And it shows as an expense on reports and it is not an expense.

Tom Young

Categorizing accrued interest on a bond purchase either as an expense or negative income is just wrong to begin with. At the very least you're probably distorting overall income between periods: months, quarters, years, unless the coupon is in the same month you paid the accrued interest. The method I outlined does away the distortion and gets the net reportable income into the correct period.

MichaelCortese

Your two posts have conflicting information. The accrued interest category in my version of Quicken is an expense, not an income category (like you said above) and it cannot be changed.

Accrued interest is an asset. It is not an expense. It is not income. Any accrual in accounting is an asset. The built in Accrued interest (that you say you are using) is an expense.

Tom Young

The accrued interest that you enter using a Bonds Bought action is posted as a MiscExp but shows up as a negative number in the income section of reports:

Information downloaded from brokers frequently do post it as an interest expense:

The bottom lines are the same, either way, but the real point is that accrued interest paid should not show up in an Income & Expense report in the first place.

You could post an "IDEA" asking Quicken to do this accounting correctly.

q_lurker

Mine shows up like this - as a negative income in the income grouping; not with the groceries and socks:

I am not an accountant, so bear that in mind. If you want it as an asset, you need to do it like Tom does (buying a fictional security) or by creating an Asset account and transferring the accrued interest 'payment' to that asset account. Change the category on the MiscExp transactions to the Asset account.

From my layman's seat, it is cash out of my pocket - an expense (or a negative income).

Trying to think out the comparison

Tom:

Buy security with accrued interest value — $200 cash out of account — security value = $200
When interest received,
- Sell security for same amount — $200 cash into account — security value = $0
- Record balance of interest received ($500 - $200 = $300) — cash into account — Interest Income Category
Net $300 in account and Interest Income = $300

Alternate asset account (my guess):

Transfer accrued interest value to Asset Acct — $200 cash out of account — asset account value = $200
When interest received,
- Transfer amount from asset acct to brokerage account ($200) —$200 cash into account — asset account = $0
- Record balance of interest received ($500 - $200 = $300) — cash into account — Interest Income Category
Net $300 in account and Interest Income = $300

Quicken default way:

MiscExp accrued interest value as negative income against _Accrued Int category — $200 cash out of account
When interest received,
- Record as Interest Income — $500 cash into account
Net $300 in account and net $300 interest income recorded ( -200 when bond bought and +500 when interest received.)

@Tom Young

At the very least you're probably distorting overall income between periods: months, quarters, years, unless the coupon is in the same month you paid the accrued interest.

I am not understanding that. Maybe I am confusing "overall income" with cash flow. I have had cases where the accrued income outlay was in last portion of year 1 and the coupon interest was not received until first part of year 2. Tax-wise, I had to defer the accrued interest consideration until the interest was actually received. Is that your basis for "just wrong to begin with"? Is there anything beyond this "very least"?

q_lurker

OK, some more head-scratching

I do see in the category list, _Accrued Int identified with Type = Expense.

Yet in my personal file, it gets shown in the Income grouping as I previously showed for both Income/Expense by Category (shown above) and Itemized Categories reports (shown below).

Yet in my test file, the Itemized Categories report is different — whereas Personal file shows under Income; Test File shows under Expenses. Same effect on bottom line. I suspect this test file behavior is where @MichaelCortese raises his objection.

versus

No solid explanation to offer other than my personal file dates back 30+ years having begun under Quicken for DOS and that Test file is perhaps 2 years old.

MichaelCortese

I think It depends on the report. The spending comparison report shows it as an expense.

Tom Young

@q_lurker

"At the very least you're probably distorting overall income between periods: months, quarters, years, unless the coupon is in the same month
you paid the accrued interest. "

That was not particularly clear, admittedly. I was really speaking to the understatement of net income (income - expenses) and the overstatement of net income if the purchase and the "next" coupon don't occur in the same period. If those transactions straddle year end and you don't catch it then tax reports could be similarly affected.