If interest revenue for 2006 is $13,100, and accrued interest receivable was $2,275 for 2006 and $1875 for 2005, how much cash did I receive for interest in 2006?

May Me

$8,950

simon1212

How did you arrive at that? I asked some people offline--two got $12,700, and one got $10,825.

Thanks!

morgaine300

Proving once again that just giving answers away doesn't help people to learn. (I so revel in it when I get to say that. ) A lesson for those of you who give away answers. (Especially when they're wrong.)

This is a basic adjustment we use for doing cash flows, though likely it's an earlier chapter and they think they're getting you to understand the concept of accrued and deferred accounts. I think it's a bit early to learn this, but....

The $12,700 is correct. Something goes into receivables when you record the revenue but do not collect on it, right? i.e. you have Fees Earned to record, but you stick it into A/R because you haven't gotten paid yet. Same thing here, except it's interest. It makes no difference that it's interest. You record interest revenue that is earned, and put it into an interest receivable because it has not been collected yet.

This balance in the receivable went up from 2005 to 2006. (Assuming these are year-end balances, and I can't see anything else they could be.) If something goes into a receivable because it hasn't been collected, that balance that went up is because $400 of the interest revenue never got collected. It shows the revenue as $13,100, which was recorded and shows on the income statement... but $400 never collected. So you collected 13,100 LESS the 400 = 12,700 in cash collected.

All current assets will do the same thing. The adjustment you want to make goes the opposite direction of what the balance did. Balance went up, so we subtract to make the adjustment off the revenue. The 10,825 is incorrect because it only accounts for the beginning balance, and the 8950 subtracted both balances instead of the difference in the balances.

sajalarora

hello ,

why got confused .
just concentrate and you will have the answer by yourself.

first of all i make you clear about what i understand from the question statement.

your position is for the period 2006.

and your interest revenue includes both accured interest for 2005 & 2006

now let me clear you is that there is a difference between the words 'DUE' & ' ACCURED'

due - means - now the final payment is due from the party- that is due date for receving the money is arrived.

but accured - means- due date is yet not arrived but the period covered you assume your income

example: due date of receiving rent for the month is 7.4.2008 for the month of march.
but you can assume your income as accured on 31.3.2008
and if after 7.04.2008 you not receive the payment we say it is due but not received.

ok, so interest revenue : 13100
less : accured 2006: 2275
less: due 2005 : 1875

balance is 8950 this amount you receive as a cash

morgaine300

Doesn't work this way. Granted, many people just don't bother to try, or they give up if they don't have an answer in 3 seconds. And sometimes it's obvious someone isn't thinking or trying. But if someone has been trying really, really hard on something, they're going to wonder what's wrong that they have been concentrating but still can't get it.

Consider that you got the answer incorrect yourself. So... I guess you just didn't concentrate?

BTW, there is no difference between due and accrued in this context. The only way the word "due" takes on a different meaning is if you're referring to being currently due, as opposed to due at some later point in time. i.e. you're specifically referring to the time period in which it's due. But from the point of view of things being accrued, they are all due at some point, and in this context, everything is due at some future point, whether it's tomorrow or 10 years from now. There is nothing in the problem giving any implication that the number for 2005 is "due" but the number for 2006 is "accrued." They're both accrued balances, as of their respective years. i.e. this is a misinterpretation of the problem.

Do you know how to do adjustments for cash flow statements? That's what this is, but applied in a different context. (And I suspect, is probably about Ch. 3 of some textbook.)