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In the current fiscal year, the company has obtained a new loan, and interest started accumulating immediately but has not yet been paid. Which of the following entries is correct when recording the loan, and when recording interest accrual?

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jepessoa

Answer:

When you record the loan the journal entry should be:

  • Dr Cash account xxx
  • Cr Notes Payable account xxx

Cash was received so it must increase, while a liability is created.

When you record interest accrual the journal entry should be:

  • Dr Interest Expense account yyy
  • Cr Interest Payable account yyy

Interest is an expense therefore it should be debited, since it hasn't been paid yet it is a liability.

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