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How do I make a journal entry for interest on notes receivable?

Asked Feb 16, 2009, 06:40 PM — 5 Answers
Interest on all notes was collected on May1. The rate is 12% per year. The accounting system provides for cash collections of interest to be credited first to existing accrued interest receivable carried over from the preceding period.
The accrued interest receivable debited in the preceding period was 16.

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5 Answers
mazhar641's Avatar
mazhar641 Posts: 2, Reputation: 1
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#2

Feb 17, 2009, 10:04 AM
Cash dr
Intrest Income Cr
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cha123's Avatar
cha123 Posts: 2, Reputation: 1
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#3

Feb 17, 2009, 10:20 AM
The notes receivable is 100.
If the journal entry is cash dr interest income cr, what is the difference for the entry if I adjust for interest on notes receivable?
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pready's Avatar
pready Posts: 2,666, Reputation: 887
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#4

Feb 18, 2009, 01:01 PM
The entry to recored on collection of the interest is:
Debit Cash for the amount received
Credit Interest Receivable for the amount in the account
Credit Interest Revenue for the Difference
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sun09's Avatar
sun09 Posts: 1, Reputation: 1
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#5

Feb 24, 2009, 07:26 AM
Quote:
Originally Posted by pready View Post
The entry to recored on collection of the interest is:
Debit Cash for the amount received
Credit Interest Receivable for the amount in the account
Credit Interest Revenue for the Difference

Can you please explain why the difference is credited to interest revenue? Isn't part of the cash payment for the current year interest?
For examples, if total notes receivable was $200, the interest due (12%)would be $24. The accrued interest receivable on books was $16 so the balance is $8. Wouldn't the $8 be for interest for current year that hasn't been earned yet?
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pready's Avatar
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#6

Feb 24, 2009, 09:07 AM
If you have $16 in Interest Receivable you credit the account for the amount received. The additional $8 is earned interest revenue for the current year so your journal entry will be:
Debit Cash for $24
Credit Interest Receivable for $16
Credit Interest REvenue for $8 (Difference of $24 - $16)

Note: The $24 cash received is for $16 of the previous period Earned Income Revenue + the current period Earned Interest Revenue of $8.
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