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Former Member
May 09, 2008 at 03:43 PM

Interest on a receivable

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Hi guys: my client wants to put a pre-calculated interest amount and receive funds against it.

So if the invoice is $100 net 15 days... there would be a $3 finance charge if paid after the 15th day.

When the customer pays on the 20th day, he/she pays $103.

Sequence of entries are as follows:

Invoice

1) Dr. Customer $100

Cr. Revenue $100

Cash receipt

2) Dr. bank $103

Cr. Customer $100

Cr. Interest Income $3

Here are my questions:

1- Are these the correct accounting entries?

2- We receive our money via lockbox. How will the system know to automcatically charge off the difference to the interest income account?

thanks very much

Brian