Which entry is made to record interest earned on notes receivable?

To record interest earned on notes receivable, the appropriate journal entry involves recognizing the revenue that has been earned but may not yet have been received in cash. In this case, it is essential to increase the interest revenue account, which reflects income earned from lending activities. By debiting Interest Receivable, the company acknowledges that there is an amount owed to them in the future, which represents the interest earned on the notes but not yet collected in cash. At the same time, crediting Interest Revenue properly reflects the income earned during the period, thus aligning with the revenue recognition principle in accounting. This entry accurately captures the transaction by showing both an increase in expected future cash inflows (through Interest Receivable) and an increase in revenue for the period (through Interest Revenue).