Level 4: Receivables and payables · Exercise 44 of 72 · Pro

Collecting a customer note with interest

A journal entry exercise from Journaldrill. Solve it with an account picker and debit and credit fields in your browser, and it is checked the moment you submit.

The task

Holt Landscaping's 90-day, 9% note receivable for $4,800, held by Fernway Garden Center, matures today, and Holt pays the principal plus interest in cash. No interest was accrued earlier because the note was issued and matured in the same year. Use a 360-day year.

What this exercise teaches

Interest is $4,800 x 9% x 90/360 = $108, so the customer pays $4,908. Cash is debited for the full amount, Notes Receivable is credited for the $4,800 principal, and the $108 is Interest Revenue. Interest Receivable is used only when interest was accrued at an earlier period end.

A hint if you get stuck

Collect the principal and the interest in one receipt; the interest was all earned this year, so none of it was accrued before.