An adjustment that must be made for the accrued interest on a note payable is to:
A)debit Interest Expense and credit Interest Income.
B)credit Interest Expense and debit Interest Income.
C)debit Interest Expense and credit Interest Payable.
D)debit Interest Expense and credit Cash.

Question

Quizplus · Accepted Answer

The accrued interest on a note payable represents interest that has been earned by the lender, but not yet paid or recorded by the borrower. To account for this accrued interest, the borrower needs to debit Interest Expense (to recognize the expense associated with the interest) and credit Interest Payable (to reflect the liability owed to the lender for the accrued interest). Therefore, choice C is the correct answer. Options A and B are incorrect because they imply that there is some interest income earned, which is not the case. Option D is incorrect because it implies that cash is involved in the adjustment, which is not true for an accrued interest entry.

An Adjustment That Must Be Made for the Accrued Interest