At the end of the year, a company makes a journal entry to accrue the interest expense on a short-term note payable. As a result of this transaction:
A) current liabilities increase and current assets increase.
B) current liabilities increase and equity increases.
C) current liabilities decrease and equity decreases.
D) current liabilities increase and equity decreases.

Question

Quizplus · Accepted Answer

The journal entry to accrue interest on a short-term note payable will increase the current liability for interest expense and decrease equity through the recognition of expense. Therefore, option D is the correct choice. Options A and B are incorrect because the entry does not affect current assets, and it decreases equity instead of increasing it. Option C is incorrect because it implies that the entry reduces both current liabilities and equity, which is not the case.

At the End of the Year, a Company Makes a Journal