Interest that has accrued during the accounting period on a note payable requires an adjusting entry consisting of:
A)A debit to Interest Expense and a credit to Cash.
B)A debit to Notes Payable and a credit to Interest Payable.
C)A debit to an asset and a credit to a liability.
D)A debit to Interest Expense and a credit to Interest Payable.

Question

Quizplus · Accepted Answer

When interest accrues on a note payable, it means that the company owes the lender interest but has not yet paid it. Therefore, the company must recognize the interest expense (debit) in the current accounting period and record the amount owed as interest payable (credit), which is a current liability. This is done through a adjusting entry with a debit to Interest Expense and a credit to Interest Payable. Option A is incorrect because cash is not involved in this transaction. Option B is incorrect because it is the opposite of what is required. Option C is also incorrect because an asset and a liability cannot both be debited or credited.

Interest That Has Accrued During the Accounting Period on a Note