Accounting for IGCSE & O level - Accounting Procedures (Section 1 - No. 45)

If a company allows interest charges to be added to a customer's overdue account, what is the impact on the accounts?

Debit Interest expense, credit customer's account.

Debit Customer's account, credit Interest income.

Debit Interest income, credit customer's account.

Debit Customer's account, credit interest expense.

The customer owes more, so their account is debited. The company earns interest income.