Question

What will be included in a journal entry to record receipt of interest on an interest-bearing notes receivable?

1) Debit to Cash and Credit to Interest Income
2) Debit to Interest Income and Credit to Cash
3) Debit to Notes Receivable and Credit to Interest Income
4) Debit to Interest Expense and Credit to Cash

Answer 1

The correct journal entry for receiving interest on an interest-bearing notes receivable is to debit Cash and credit Interest Income, increasing both the asset and income accounts respectively.

Step-by-step explanation:

When recording the receipt of interest on an interest-bearing notes receivable, the correct journal entry will include a debit to Cash because the company is receiving money. Conversely, a credit to Interest Income is made to reflect the income earned from the interest on the note. It is important to understand that in accounting, debits and credits must balance, and this entry affects both the asset being increased (cash) and the income being recognized (interest income).

Therefore, the correct journal entry to record this transaction is:

• Debit Cash
• Credit Interest Income