Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

Why would a company debit Interest Receivable in its accounting records?

To recognize interest expense that has been paid in advance

To decrease the balance of interest revenue

To write off uncollectible interest income

To record interest that has been earned but not yet received in cash

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Verified step by step guidance

Understand the concept of Interest Receivable: Interest Receivable is an asset account that represents the amount of interest a company has earned but has not yet received in cash. It is recorded when the company has a legal right to receive the interest payment.

Recognize the timing principle in accounting: According to the accrual basis of accounting, revenues are recognized when they are earned, not necessarily when cash is received. This principle ensures that financial statements accurately reflect the company's financial position and performance.

Identify the scenario: In this case, the company has earned interest revenue but has not yet received the cash payment. To properly record this earned revenue, the company needs to debit the Interest Receivable account to increase its balance, reflecting the amount owed to the company.

Understand the journal entry: The company would debit the Interest Receivable account (an asset) to increase its balance and credit the Interest Revenue account to recognize the earned revenue. This ensures that the revenue is recorded in the correct accounting period.

Connect the reasoning to the correct answer: The company debits Interest Receivable to record interest that has been earned but not yet received in cash, aligning with the accrual basis of accounting and ensuring accurate financial reporting.