The adjusting entry to record interest that has accrued on a note payable to the bank will cause an immediate:
A)Increase in liabilities and reduction in net income.
B)Decrease in liabilities and reduction in net income.
C)Decrease in assets and reduction in net income.
D)Increase in assets and increase in net income.

Question

Quizplus · Accepted Answer

Accrued interest on a note payable is recognized as an expense and increases the interest expense account while increasing the liability for the amount owed to the bank. This results in a decrease in net income (due to increased expense) and an increase in liabilities.

The Adjusting Entry to Record Interest That Has Accrued on a Note