Problem
On August 1, 2021 Brad's Bakery received a $2,000 notes receivable from a customer with a maturity date of one year later (July 31, 2022). The annual interest rate is 4% and interest is accrued monthly. Principal and all interest will be collected in cash at the maturity date next year.
I. Create the journal entry that would be required for Brad's Bakery on December 31, 2021, assuming this is the end of their fiscal year. Show your calculation.
II. Why is this journal entry required even though the notes receivable (principal and interest) is not actually paid at this time?