On August 1, Year 1, made by Company payable at maturity. Required:
General Journal is a book of prime entry where the finacial transactions are first entered in the form of debit and credit as per rule of accounting with a brief narration describing the transaction.
Normally Accrual Basis is followed in accounting which recognises revenue and expenses on accrual and not on the basis of receipt or payment[ it is done on Cash Basis of Accounting]
So in the books of B Co. the accured interest receivable needs tobe recoreded for 5 months i.e Aug to Dec as the accounting year ends on 31st Dec and interest revenue is tobe recognised.
The entry is as under ---
Please refer step 2
Working of interest :
| Particulars | Amount $ |
| Amount of Notes Receivables from Co. A | 19,700,000 |
| Interest accrued for 5months Aug to Dec @ 9% p.a | 19700000 x 9% / 12 x 5 =738,750 |
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