A company has a loan that accrues interest at a rate of $20 a day.The company pays the interest once a quarter.Which of these would be an accurate adjustment for a month in which no payments are made?

Question

Quizplus · Accepted Answer

Since no payments are made, the interest expense accrues and increases the liability in the form of interest payable. Therefore, we need to debit Interest Expense to recognize the expense and credit Interest Payable to increase the liability, accurately reflecting the interest that has accrued during the month.

A Company Has a Loan That Accrues Interest at a Rate