When a Notes Receivable Is Outstanding at the End of an Accounting

question 1

Multiple Choice

When a notes receivable is outstanding at the end of an accounting period,________.

• A) no adjusting entry is needed
• B) the revenue recognition principle requires that earnings from the note be recorded in the year the cash is received
• C) the total interest on the note should be recorded in an adjusting entry
• D) the interest revenue earned on the note up to year-end is part of that year's earnings

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Definitions:

Trial Balance

A financial report that lists the balances of all ledgers accounts on a specified date, used to verify that the total debits equal total credits in the accounting system.

Account Balance

The difference between the total debits and total credits in an account, representing the current amount in that account.

Debits

Entries that increase asset or expense accounts, or decrease equity, liability, or revenue accounts, typically noted on the left side of an accounting ledger.

Credits

In accounting, credits refer to an entry on the right side of a double-entry bookkeeping system that increases liabilities, equity, or revenue or decreases an asset or expense account.