Accounts Receivable and Interest

by Keith Lorino
(Belleville, IL, USA)

Q: I am trying to understand the accounts receivable principle for how creditors figure minimum payments. How is the interest versus principal during stages of accounts receivable recorded if after 30 days the interest goes up?


A:
Minimum payments are calculated based on the interest rate charged (%), the length of the time for the debt to be repaid (days or months) and the value of the debt ($).

The entry for more interest (added after 30 days) could be as follows:
DR Accounts Receivable
CR Interest Received

This entry shows that interest is recorded and this increases the debt owing to the business.

When you receive payment:
DR Bank
CR Accounts Receivable

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