Interest expenditures on bonds payable should be recorded in a debt service fund

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Interest expenditures on bonds payable should be recorded in a debt service fund when the interest is legally payable, which means it is due according to the bond agreement. This is because the debt service fund's purpose is to account for the payment of principal and interest on long-term debt, and the legally payable date is when the obligation to pay interest becomes certain. It is not sufficient to record interest expenditures only when the interest due date does not coincide with the end of the fiscal period, as this may not capture all legally payable interest. Recording interest expenditures when bonds are issued or paid is also not appropriate as it would not account for accruing interest between those events.

Interest Expenditures on Bonds Payable Should Be Recorded in a Debt