How to Calculate Interest Receivable and Interest Revenue for Notes Receivable

Companies often extend credit to other businesses in the form of a note, or a short-term loan. Most notes pay a stated rate of interest, resulting in interest revenue that the lender must record at various points in time until the note comes due.

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Computer keyboard with a magnifying glass hovering over a key that says loan. — Image source: Getty Images.

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In this case, your company will need to account for accrued interest revenue on Dec. 31, 2015, to close out the books for the month and year, well before the note comes due on Feb. 8, 2016. This happens frequently in accrual accounting — revenue is recognized before it is received in cash.

To calculate interest revenue for the 21 days up to the end of the year, you would follow the same steps as in the interest receivable example.

Principal x Interest x Time = Interest revenue

$10,000 x 9% x (21 days/360 days) = $52.50

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On Dec. 31, 2015, you would record $52.50 as a credit to interest revenue. Interest receivable would be debited by an equal amount. The remaining interest would be accrued as revenue in future periods as the interest is earned.

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