Question

Davis Company has 60-day, 10% note payable for $4,500 dated December 14 in which interest has accrued. On January 1, after adjusting and closing entries have been posted, what is the appropriate reversing entry?

Answer 1

The reversing entry would debit Interest Payable and credit Interest Expense to reverse the accrued interest recorded at year-end, preparing for the actual payment of interest.

Step-by-step explanation:

The student is asking about the appropriate reversing entry for an accrued interest on a note payable in accounting. Assuming that the interest for the period up to December 31 has already been recorded as an adjusting entry,

the reversing entry made on January 1 would remove this accrual by debiting Interest Payable and crediting Interest Expense, effectively setting the stage for the actual interest payment to be recorded when it occurs.

However, without knowing how much interest had been accrued by December 31, it is not possible to provide the exact amounts for the reversing entry. This type of entry simplifies the recording of future transactions related to interest.

The appropriate reversing entry for the Davis Company's 60-day, 10% note payable is to debit the Interest Payable account and credit the Interest Expense account.

This entry is made to reverse the accrual of interest that was recorded at the end of the accounting period. By reversing the accrual, the interest expense is correctly recorded in the subsequent period when cash payment is made.