Interest Income

What is interest income?

Interest income is money earned on bank accounts, loans you have made, or other interest-bearing instruments. Business savings accounts, money market accounts, and CDs generate interest income. If clients pay you late and you charge interest, that is also interest income. Interest income is taxable and should be recorded separately from your service revenue.

Sources for service businesses

Operating account interest is minimal but should still be recorded. Business savings accounts and money market funds generate more meaningful interest. If you extend payment terms and charge interest on late payments, record that interest income separately. Loans to employees or related parties should charge interest at applicable federal rates, creating interest income.

Recording and reporting interest

Record interest income when earned or when received, depending on your accounting method. Banks report interest on Form 1099-INT if it exceeds $10 annually. Even unreported small amounts are taxable. Keep interest income separate from operating revenue for cleaner financial analysis. Interest income appears as other income below operating income on your profit and loss statement.