Explanation:
Cash A/c Dr $4,920
To Interest receivable $100
To Interest revenue $20
To Note receivable $4,800
(Being cash received in respect of note receivable, interest accrual is recorded)
The computation of interest receivable is shown below:
= Principal × rate of interest × number of days ÷ (total number of days in a year)
= $4,800 × 10% × (75 days ÷ 360 days)
= $100
The 75 days is counted from taking 14 days of October month, 30 days of November month and 31 days of December month
The computation of interest revenue is shown below:
= Principal × rate of interest × number of days ÷ (total number of days in a year)
= $4,800 × 10% × (15 days ÷ 360 days)
= $20
The 15 days is of Jan 1 to Jan 15
