On December 1, Company $8,600 of merchandise to a customer who signs a 3-months

Question

On December 1, Company $8,600 of merchandise to a customer who signs a 3-months note to pay the purchase price plus interest at 10% at the due date of March 1. What journal entry should the company make at the time of the sale? What adjusting journal entries should the company make at December 31 to record the interest owed on the note? What effect does this entry have on the accounting equation? What journal entry should the company make on March 1 when the note is repaid? What effect does this entry have on the accounting equation?

Explanation / Answer

1. journal entry at time of sale 1st december

Notes receivable $6.600

Sales revenue $6,600

2. Accounting equation

Assets = Liabilities + equity

+6,600 = 0 + 6,600

3. Interest accrued at 31 st december

Interest = 6,600 * 10% * 1/12 = $55

Interest receivable $55

Interest revenue $55

4. Accounting equation

Assets = Liabilities + equity

+$55 = 0 + $55

5. Journal entry on march 1

Cash $6,765

Notes receivable $6,600

Interest receivable $55

Interest revenue $110

6. Accounting equation

Assets = Liabilities + equity

+6,765 - 6,600 - 55 = 0 + $110

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