Final answer:
The accounting entries in question involve accruing interest expense and recording depreciation, both of which are part of the accrual accounting method. Interest expense is recorded to reflect the cost of borrowing, while depreciation spreads out the cost of an asset over its useful life.
Step-by-step explanation:
The question pertains to accounting entries for accrued expenses and depreciation. The basis of these entries is grounded in the accrual method of accounting, where transactions are recorded when they are incurred, not necessarily when cash is exchanged. Interest expense is recorded to reflect the cost of borrowing funds over time. A time deposit or certificate of deposit typically pays higher interest due to the commitment of the depositor to leave funds in the bank for a set period.
When recording interest that has accumulated but not yet paid, an adjusting entry debits Interest Expense and credits Interest Payable to recognize the liability. For depreciation, the entry debits Depreciation Expense and credits Accumulated Depreciation to allocate the cost of tangible assets over their useful lives.
These accounting practices align with the principle of matching expenses with revenues in the period they are incurred, providing a more accurate picture of a company's financial performance. This is essential for financial statements, such as the balance sheet, which uses a T-account format to present assets and liabilities.