Where does accrued interest on notes receivable get reported on the balance sheet?
Accrued interest on notes receivable is likely to be reported as a current asset such as Accrued Interest Receivable or Interest Receivable. The accrued interest receivable is a current asset if the interest amount is expected to be collected within one year of the balance sheet date.
I would expect that even a long-term note receivable that is due in five years will require that the interest on the note be paid quarterly, semiannually or annually. Hence the accrued interest will be a current asset.
If the interest on the note is not expected to be received within one year of the balance sheet date, then the accrued interest receivable should be reported as a long-term asset.
Learn more about Adjusting Entries.
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Color paint shop is an accrual taxpayer that paint automobiles. During theyear, the company painted Samuel’s car and was to receive $1000 payment from insurance company. Samuel was not satified with the work, however, and the insurance company refuse to pay. In Dec. 2007, Color and Samuel agreed that color would receive $800 for the work subject to final approval by the insurance company. In the past, Color had come to terms with customers only to have the insuance company negotiate an even lesser amount. In May 2008, the insurance company reviewed the claim and paid the $800 to Color. An IRS agent think that Color, as an accrual basis taxpayer, should report $1000 of income in 2007, when the work was done, and the deduct a $200 loss in $2008.
Prepare a memo to Susan Apple, a taxpayer partner for whom you are working with the recommended treatment for the disputed income.