Q: > Hello
> Good Afternoon
> while practiceing my test i have a question for u.As doing problem
3 in its journal the 1st one i could not understand i am having complecation
between yours and my answer.
> My answer for that is
> interest rec/ 58.34
> interest revenue
58.34
> I dont know if i am write or wrong.
> plesae reply
> Thanks
A: Your calculation for the total
interest generated from the note is correct. What you are failing to consider,
however, is the fact that this interest was earned across two different
accounting periods. Thus, each accounting period must record the portion
of the interest earned during the period within its own entry. If we do that,
then we will find that $46.67 was earned during the first accounting period
(as at December 31, 2003).
Interest
Revenue
11.67
Interest Receivable
46.67
Q: > Hello,
> good morning,
> Yes i am here again
> My question was in practice test ?3 answer writen init is
> dec31st: interest rec/
51.60
> note interest
earned
51.60
> To record accrued interest on notes rec
> how did u got that entry though the question was
> Dec 31st,2003: Record a single compound adjusting entry for all of the
interst earned up to December 31st,2003.
> Thanks
A: Ah yes. I can see that you are a
little confused about how a "compound entry" works.
Let me explain...
A "compound entry" refers to taking
two or more entries and then combining, or compounding, them into a
single entry. We can do this anytime that we have two or more entries
arising from a single transaction, adjustment, or correction.
In this case, we have a single adjustment that
actually gives rise to two potential entries. Individually, they would
be recorded as:
December 31:
Interest Receivable 46.67
Interest earned
46.67
December 31:
Interest Receivable 4.93
Interest earned
4.93
However, we can accomplish the exact same thing
in a single transaction if we compound the two entries above into a single
entry. The compounded version of the above entries would look like this:
December 31:
Interest Receivable 51.60
Interest earned
51.60
In the end, the balances of our accounts will be
the exact same regardless of which approach we use. Thus, we will tend to
use compound entries whenever we can, because it is faster and results in
fewer entries. (Imagine the entries you would have to make if you had a
hundred or more notes receivables!) As a general rule of thumb, a journal
will be easier to use and easier to understand if we reduce the number
of entries that we make in it, while still achieving all of our objectives.
