Question

if a bank statement included a bank collection of a note receivable and the related interest revenue, the journal entry to record this item should include a
a. debit to note payable, credit to cash and credit to interest revenue.
b. debit to cash and a credit to note receivable.
c. debit to note receivable and a credit to cash.
d. debit to cash, credit to note receivable, and credit to interest revenue.

Explanation:

When a bank collects a note receivable and related interest revenue, the company receives cash (so debit Cash). The note receivable is being satisfied, so we credit Note Receivable to reduce it, and we also recognize the interest revenue by crediting Interest Revenue. Let's analyze each option:

• Option A: Note Payable is incorrect (we have a note receivable, not payable), and the debits/credits are wrong.
• Option B: It misses the credit to Interest Revenue, so incomplete.
• Option C: Debiting Note Receivable and crediting Cash is the opposite of what happens (we receive cash and reduce the note receivable).
• Option D: Debit Cash (for the amount received), credit Note Receivable (to remove the receivable), and credit Interest Revenue (to recognize the interest earned) – this matches the transaction.

Answer:

D. debit to Cash, credit to Note Receivable, and credit to Interest Revenue.