On March 1, 2013, the company lent a supplier $23,000 and a note was signed requiring principal and interest at 9% to be paid on February 28, 2014.
If the journal entries are
intrest recievable
intrest revenue
how much should I allocate to each section?
To determine the amount that should be allocated to each section (Interest Receivable and Interest Revenue) in the journal entries, you need to calculate the interest earned on the loan from March 1, 2013, to February 28, 2014.
We can use the simple interest formula: Interest = Principal x Rate x Time.
In this case, the principal amount is $23,000, and the interest rate is 9%. The time period is from March 1, 2013, to February 28, 2014, which is exactly one year.
Interest = $23,000 x 0.09 x 1 = $2,070
Therefore, the interest earned on the loan is $2,070.
Now, let's allocate this amount to the two sections:
1. Interest Receivable: This account represents the interest that the company has earned but has not yet received. Since the interest will be received by February 28, 2014, you need to record the interest as receivable until it is received.
So, allocate $2,070 to the "Interest Receivable" account.
2. Interest Revenue: This account represents the revenue earned by the company from the interest on the loan. Once the interest is earned, it should be recognized as revenue.
Therefore, allocate $2,070 to the "Interest Revenue" account.
In summary, the journal entries would be:
Debit: Interest Receivable - $2,070
Credit: Interest Revenue - $2,070
Please note that these journal entries only relate to the interest portion of the loan and not the loan principal itself. Loan principal would require separate journal entries.