Question

As of April 30, 1227 of interest expense has accrued on a note payable. The full interest payment of 3680 on the note is due on May 20. How to adjust and record this?

Answer 1

To record the accrued interest expense of $1,227 on a note payable, an adjusting entry is made to debit Interest Expense and credit Interest Payable.

On the payment date, a journal entry removes the liability and recognizes the remaining interest expense, ensuring expenses match the periods in which they occur.

Step-by-step explanation:

The question asks how to account for the accrual of interest expense on a note payable and the subsequent adjustment for the full interest payment that is due at a later date.

To explain the accounting treatment, the process would involve making an adjusting entry to recognize the interest expense that has accrued up to April 30 even though the payment will not be made until May 20. The entry debits Interest Expense and credits Interest Payable for $1,227.

When May 20 arrives and the full interest payment of $3,680 is made, an additional journal entry is required to debit Interest Payable for $1,227 (removing the liability recognized previously), debit Interest Expense for the remaining $2,453 ($3,680 - $1,227), and credit Cash for the full payment amount of $3,680.

This accounting treatment matches interest expenses with the period in which they occur, in compliance with the accrual basis of accounting.