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

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

When a company receives payment of both principal and interest on a note receivable dated December 16, which of the following journal entries is correct?

Debit Notes Receivable; Credit Cash; Credit Interest Revenue

Debit Cash; Credit Interest Expense; Credit Notes Payable

Debit Cash; Credit Notes Receivable; Credit Interest Revenue

Debit Interest Revenue; Credit Cash; Credit Notes Receivable

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Verified step by step guidance

Understand the nature of the transaction: The company is receiving payment for both the principal and interest on a note receivable. A note receivable represents an asset, and interest revenue is earned as part of the agreement.

Identify the accounts involved: The accounts affected are 'Cash' (an asset account), 'Notes Receivable' (an asset account), and 'Interest Revenue' (a revenue account).

Determine the journal entry structure: When cash is received, it is debited to increase the asset account. The 'Notes Receivable' account is credited to reduce the asset account, as the principal is being paid off. The 'Interest Revenue' account is credited to recognize the earned interest.

Apply the accounting equation: Ensure that the journal entry maintains the balance of the accounting equation (Assets = Liabilities + Equity). In this case, cash increases (asset), notes receivable decreases (asset), and interest revenue increases (equity).

Write the correct journal entry: Debit 'Cash' to record the receipt of money, credit 'Notes Receivable' to remove the principal amount from the books, and credit 'Interest Revenue' to recognize the earned interest.