What is the general journal entry to record the sale of a loan?

The sale of a loan typically involves transitioning the rights associated with the loan to another party, which often entails receiving cash in exchange. In this context, when a loan is sold, the cash received represents the consideration for relinquishing the rights to collect the loan's principal amount.

In the correct entry, the cash account is debited to reflect the increase in cash the company receives from the sale. The corresponding entry is a credit to the notes receivable account, indicating a decrease in the company's receivables as they no longer have the right to collect on the loan. This entry accurately depicts the accounting principle of matching debits and credits, ensuring that the company's financial statements remain balanced and true to the transactions it engages in.

The other entries presented do not appropriately reflect the components involved in a loan sale. For instance, entries involving interest revenue or interest receivable are typically used in situations dealing with interest accruals rather than the sale of the underlying loan itself. The essence of this transaction is the direct exchange of cash for the loan notes, which is why the correct entry focuses on cash and notes receivable.