What would be the adjusting entry for a note payable whose interest is not included in the face amount of the note?
A)Debit Interest Receivable and credit Interest Income.
B)Debit Interest Expense and credit Cash.
C)Debit Interest Expense and credit Interest Payable.
D)Debit Cash and credit Notes Payable.

Question

Quizplus · Accepted Answer

This adjusting entry is needed to recognize the interest expense that has accrued on the note payable but has not yet been paid. Debiting Interest Expense increases the expense account, while crediting Interest Payable increases the liability. Option A is incorrect because it assumes that the interest has already been received, which is not the case. Option B is incorrect because it fails to recognize the liability associated with the unpaid interest. Option D is incorrect because it only recognizes the original cash and notes payable transactions, but not the interest that has accrued.

What Would Be the Adjusting Entry for a Note Payable