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For a payday loan company client who issues a loan to a customer, they have the following JE’s:
Dr. Accounts Receivable- Principal $1000
Cr. Bank $1000
Dr. Accounts Receivable- Interest $ 100
Cr. Interest Revenue $ 100
The issue is, the customer hasn’t paid back the loan yet (they just received the loan), so I believe the revenue recognition is too aggressive, since how could they recognize revenue if customer hasnt paid it yet?
If we wanted to recognize interest revenue at the point of repayment from the customer, what should we credit instead?
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