What journal entries are made at the maturity of a loan?

At the maturity of a loan, several key accounting entries must be made to accurately reflect the completion of the loan agreement. When a loan reaches maturity, the borrower typically pays back the principal amount along with any accrued interest.

Choosing to debit Cash and credit Notes Receivable captures the repayment of the principal. Additionally, it is essential to record any interest that has been accrued over the loan period. To do this, both Debit Interest Receivable and Credit Interest Revenue must be included in the journal entry. This reflects that the interest that was expected to be received has now been earned, and the associated receivable, if it existed prior to payment, is now settled.

Therefore, the correct answer involves debiting Cash for the total amount received (both principal and interest), crediting Notes Receivable for the principal amount being settled, and also debiting Interest Receivable and crediting Interest Revenue to account for the interest component. This comprehensive entry ensures that all aspects of the loan's repayment are accurately recorded in the financial statements, reflecting the reduction in receivables and the realization of interest income.