When is interest earned on a money market account recorded on the books?

Interest earned on a money market account is recorded with an adjusting entry because this interest accrues over time, and it may not necessarily coincide with the actual cash transactions. At the end of an accounting period, businesses need to recognize the interest that has been earned but not yet received in cash. This is done through an adjusting entry, which ensures that the financial statements accurately reflect the income earned during that period, even if it hasn't been physically deposited in the account.

Recognizing interest income through an adjusting entry is a key aspect of accrual accounting, which recognizes income when it is earned, not when it is received. This mechanism helps maintain the integrity of financial reporting by ensuring that all earned revenues are accounted for in the correct accounting period, thus giving a clearer picture of a company’s financial performance.