In September of 2016,Hansen Company issued a note payable to borrow money from its bank.Principal and interest on the note would come due in June 2017.Interest expense on this note must be accrued at the end of 2016 for the period from issuance of the note to the last day of the accounting period.

Question

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Accrual accounting requires that expenses be recognized in the period in which they are incurred, regardless of when they are paid. Since interest expense has been incurred from the issuance of the note in September 2016 to the end of the accounting period in December 2016, it must be accrued and recorded as an expense in the financial statements for the period.

In September of 2016,Hansen Company Issued a Note Payable to Borrow