# Need some clarification :/

#### SirThunderous

Hello to all that read this . I just need some help with this problem. I know the answer but can't understand why it is the answer :/. The problem is written as:

Schleis Co. holds Murphy Inc.'s \$10,000, 120 day, 9% note. The entry made by Schleis Co. when the note is collected, assuming no interest has previously been accrued, is:

Cash 10,300
Notes Receivable 10,000
Interest Revenue 300
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My though process:
10,000 * .09 = 900/3 = 300

What does the \$300 represent? :/ I will be working on this now but if anyone wants to contribute some feedback, I will greatly appreciate it

#### Nii

The concept of Accruals

Hi,

With what i tink about the above is that,300 is interest revenue accrued on 10000 over 120 days at the rate of 9 percent.This is the effective interest being recognised which relate to the accounting period.
I hope i did explained well.

Regards

#### SirThunderous

Hi Nii,

Thanks so much for your feedback!.. I see what you are saying. I'm not entirely sure but I understand that I needed to divide the \$900 by 3.. I can't figure out why though :/ Am I just thinking about this too much?
Also, when it says that "assuming no interest has previously been accrued is...," what is the significance to this statement? :/

#### bklynboy

VIP Member
9% is annual interest rate for 360 days. Since this is a loan for 120 days the rate is 1/3 or 3%

#### SirThunderous

9% is annual interest rate for 360 days. Since this is a loan for 120 days the rate is 1/3 or 3%
Oh my god, I don't mean to shout but THANK YOU! I forgot to do 120 over the 360 days. Okay that cleared things up. Thanks so much to everyone that replied. You guys are great!

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