Definition of Accrued Interest on Notes Receivable
Example of Reporting Accrued Interest on Notes Receivable
Assume that on December 1, a company has lent one of its suppliers $30,000 with interest at 12% per year. Interest is to be paid quarterly (with the first interest payment to be made on March 1). On December 31, the company has earned accrued interest of $300 ($30,000 X 12% X 1/12). The company will record a December 31 accrual adjusting entry which debits Interest Receivable for $300 and credits Interest Income for $300.
The Interest Receivable account balance will be reported on the company's balance sheet as a current asset such as Accrued Interest Receivable or Interest Receivable. The accrued interest receivable is a current asset since the $300 is expected to be collected within one year of the balance sheet date.