Final answer:
When a company has earned interest in the current period but has not yet recorded it, they are required to make an adjustment called Accrued Interest.
Step-by-step explanation:
When a company has earned interest in the current period but has not yet recorded it, they are required to make an adjustment called Accrued Interest. Accrued Interest is an adjusting entry that recognizes the interest earned by the company in the current period but not yet recorded in their books.
To make this adjustment, the company will debit an Accrued Interest Expense account and credit an Accrued Interest Income account. This ensures that the company properly recognizes the interest earned and reflects it in their financial statements.
For example, if a company has earned $1,000 in interest in the current period but has not yet recorded it, they would make the following adjusting entry:
Accrued Interest Expense $1,000
Accrued Interest Income $1,000