Final answer:
An adjusting entry for interest expense not yet recorded is considered an accrued expense. It involves debiting the Interest Expense account and crediting the Interest Payable account to acknowledge the obligation to pay.
Step-by-step explanation:
An adjusting entry to record interest expense incurred by a company but not yet included in its accounting records is categorized as an accrued expense. This type of adjusting entry is necessary to recognize expenses that have been incurred but not yet recorded, as part of the accrual basis of accounting.
The entry would increase the interest expense on the company's income statement and increase the corresponding liability on the balance sheet.
To record this adjusting entry, a debit is made to Interest Expense account, recognizing the cost of borrowing money over the period, even though the actual payment has not been made. This is counterbalanced with a credit to Interest Payable account, which represents the obligation to pay in the future.
Properly recording accrued expenses ensure that financial statements are accurate and reflect the true financial position of the company at the end of the accounting period.