Question

A customer borrowed $10,000 from us in late October. As of December 31 they owe us $200 of interest that they will pay when they pay off the principal amount on January 7. By January 7 they end up owing another $50 of interest; on that date, the customers pays us the entire amount they owe. Give the entry to record the cash collected on January 7.

Answer 1

On January 7, when the customer pays off the loan, a single cash collection entry is made that debits Cash for $10,250 and credits Loans Receivable for $10,000 and Interest Revenue for $250.

Step-by-step explanation:

Cash Collection Entry on January 7

On January 7, the customer repays their loan in full along with the accumulated interest. The initial loan amount was $10,000, and by December 31, the customer accrued an interest of $200. With an additional $50 in interest by January 7, the total amount to be repaid stood at $10,250. The cash collection journal entry to reflect this payment would be:

• Debit Cash: $10,250
• Credit Loans Receivable (Principal): $10,000
• Credit Interest Revenue (Interest): $250

This entry records both the principal repayment and the interest income for the company on January 7, when the entire owed amount is received.