If a company has a notes payable of $50,000 and they pay their interest of 6% on the first of each month, do they show an adjusting entry on the 31st of the month for the interest that will be on the 1st of the next month?
2007-09-09 02:54:38 · 1 answers · asked by Rebecca D 1 in Business & Finance ➔ Corporations
If the payment on 1st Feb is for the month of January, then yes, on 31st Jan you have to make the accrual entry, only to reverse it the next day when you pay, and then you do the same again on 28th Feb. But this is only for your exams. (A seasoned bookkeeper will leave the accrual entry in the books forever, and each month the payment of interest is taken straight to income statement directly. There is no effect of this "lazy" method. There is an accrual in the books, and each month there is 1 month's interest captured in the income statement. But I shouldn't be telling you this)
2007-09-10 00:22:47 · answer #1 · answered by Sandy 7 · 0⤊ 0⤋