Interest rate

Definition

Interest rate is the percentage of a sum of money charged for its use, typically expressed as an annual percentage. In the context of receivables, it represents the cost of borrowing or the return on investment for lending.

5 Must Know Facts For Your Next Test

1. Interest rates on notes receivable are usually specified in the note agreement.
2. Accounts receivable generally do not accrue interest unless they become overdue.
3. The interest collected on notes receivable is recorded as interest revenue.
4. A higher interest rate increases the amount of interest income received from notes receivable.
5. Calculating interest involves using principal amount, interest rate, and time period.

Review Questions

Related terms

Notes Receivable:

Written promises that require another party to pay a specific amount at a future date along with any applicable interest.

Accounts Receivable:

Amounts owed by customers for goods or services sold on credit that are expected to be collected within a short period.

Interest Revenue:

Income earned from lending money or extending credit, calculated based on the principal amount and the agreed-upon interest rate.