The journal entry for accrued interest on a note payable includes:
A) debiting Interest expense and crediting Cash.
B) debiting Interest expense and crediting Accrued interest payable.
C) debiting Accrued interest expense and crediting Cash.
D) crediting Accrued interest expense.

Question

Quizplus · Accepted Answer

When interest on a note payable is accrued, the journal entry should include a debit to Interest Expense and a credit to Accrued Interest Payable. This represents the interest expense incurred by the borrower which has not yet been paid to the lender but is due at a later date. Option A is incorrect because it does not account for the fact that the interest has not yet been paid. Option C is incorrect because it mixes up the accounts by debiting Accrued Interest Expense instead of Interest Expense. Option D is incorrect because it only credits Accrued interest expense, ignoring the fact that it needs to be balanced with a debit to Interest expense.

The Journal Entry for Accrued Interest on a Note Payable