Definition of Accrued Interest on Notes Receivable
Accrued interest on notes receivable is the amount of interest the lender has earned, but the lender has not yet received it.
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.
