When a notes receivable is outstanding at the end of an accounting period,________.
A) no adjusting entry is needed
B) the revenue recognition principle requires that earnings from the note be recorded in the year the cash is received
C) the total interest on the note should be recorded in an adjusting entry
D) the interest revenue earned on the note up to year-end is part of that year's earnings

Question

Quizplus · Accepted Answer

The interest revenue earned on the note up to year-end is part of that year's earnings according to the revenue recognition principle. An adjusting entry is needed to record the interest revenue earned during the accounting period. Therefore, choices A and C are incorrect. Choice B is also incorrect as earnings from the note should be recorded based on the revenue recognition principle and not when the cash is received.

When a Notes Receivable Is Outstanding at the End of an Accounting