Interest earned and receivable on a note receivable equals $50 for the month of March.What adjusting entry,if any,should be recorded as of March 31?
A) Debit Cash $50 and credit Interest Revenue $50.
B) Debit Interest Receivable $50 and credit Interest Revenue $50.
C) Debit Interest Receivable for $150 and credit Interest Revenue $150.
D) No journal entry is needed at this time.

Question

Quizplus · Accepted Answer

The adjusting entry needed is to recognize the interest revenue earned but not yet received. This is accomplished by debiting Interest Receivable $50 (to show the amount due to be collected in the future) and crediting Interest Revenue $50 (to recognize the revenue earned in the current period). Option A is incorrect because it would decrease cash, but there is no cash transaction yet. Option C is incorrect because it would overstate the interest receivable and revenue. Option D is incorrect because an adjusting entry is needed to properly state the accounts.

Interest Earned and Receivable on a Note Receivable Equals $50