We need an adjusting journal entry to recognize the interest revenue that

we've earned by providing the money outstanding for six months.

So, we're going to credit interest revenue for 250.

The debit here going to be interest receivable to

represent the fact that Rebecca Park owes us $250 in cash.

Now where the 250 comes from is the total interest is going to be $5,000 of

principal times the 10% annual interest rate is $500 of interest per year.

But it's only been six months, so we take half of that to get $250.

Why isn't all $500 of interest considered interest receivable?

Aren't we going to receive that much in interest between now and June?

>> Actually,

all $500 of interest is not necessarily receivable between now and June.

Let's say Santa Claus brought Rebecca Park $5000 as a Christmas gift.

So on January 2nd she decided to come in and repay the loan.

On that date she wouldn't owe us $500 of interest because that's for a year, and

it's only been six months.

She would only owe the $250 of interest that have been accrued so far.

So the other $250 is not necessarily receivable,

unless the money continues to stay outstanding for the next 6 months.

So we can't consider it receivable as of December 31.