Which of the following statements regarding the recording of interest on notes receivable is true?
A)Interest on notes receivable is recorded as revenue only when the cash is received.
B)When a company receives an interest payment on a note,the entire payment is debited to interest receivable.
C)Interest on notes receivable is recognized when it is earned which is not necessarily when the interest is received in cash.
D)Interest earned but not yet received must be recorded in an adjusting entry which includes a debit to interest revenue.

Question

Quizplus · Accepted Answer

Interest on notes receivable is recognized when it is earned, which is not necessarily when the interest is received in cash. This means that the company should recognize interest revenue even if the cash is not yet received. This requires an adjusting entry at the end of an accounting period to record interest earned but not yet received. Option A is incorrect because interest on notes receivable is recorded as revenue when it is earned, not when the cash is received. Option B is incorrect because only the amount of interest earned should be debited to interest receivable, not the entire interest payment. Option D is incorrect because the adjusting entry should include a credit to interest receivable, not a debit.

Which of the Following Statements Regarding the Recording of Interest