Question

Interest of $100 is accumulated on a notes payable, although the company will not pay the interest until next year. What is the adjusting journal entry at the end of the year for the accrued interest?

Answer 1

Answer:

Debit Interest expense (p/l)   $100

Credit Accrued Interest (B/S)  $100

Explanation:

The accrual basis of accounting requires that expenses are recognized in the period incurred and not necessarily the period settled. Irrespective of the time of settlement, the interest expense on note payable at the end of the year will be thus recognized;

Debit Interest expense (p/l)   $100

Credit Accrued Interest (B/S)  $100

Being entries to recognize interest expense on note payable.