value: 100 points Which of the following statements about the recording of inter
ID: 2410700 • Letter: V
Question
value: 100 points Which of the following statements about the recording of interest on notes receivable is correct? Interest on notes receivable is recorded as revenue only when the cash is received. O When a company makes an interest payment on a note, the payment is debited to Interest Receivable. O Interest on notes receivable is recognized when it is earned, which is not necessarily when the interest is received in cash. O Interest earned but not yet received must be recorded in an adjusting entry which includes a debit to Interest Revenue.Explanation / Answer
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Interest on notes receivable is recognised when it is earned , which not necessarily when the interest is receved in cash.
Accounting works on accrual basis and all the income must be recognised at the end of the period even though it may not be received in cash. At end of each accounting period interest on note receivable should be recognised by below entry
Interest receivable DR
To Interest revenue
(Amount of Note receivable is multiplied by interest rate and no of month/days for which interest is accrued)
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