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Under the accrual basis of accounting, the amount that has occurred but is unpaid should be recorded with a debit to Interest Expense and a credit to the current liability Interest Payable. To illustrate, let's assume that a company's December loan payment included interest up until December 10.
AS per the accounting equation
owners equity = assets- liabilities
if the total liabilities is more than the assets , the owner equity will be negative
Interest expense Dr.
Interest payable Cr.
Under the accrual basis of accounting, the amount that has occurred but is unpaid should be recorded with a debit to Interest Expense and a credit to the current liability Interest Payable.
Notes Payable is a liability account that reports the amount of principal owed as of the balance sheet date. (Any interest incurred but not yet paid as of the balance sheet date is reported in a separate liability account Interest Payable.) The accountant has verified that the amount of principal actually owed is the same as the amount appearing on the preliminary balance sheet. Therefore, no entry is needed for this account.
Interest that is not unpaid is referred to an asset interest.
-under the accrual basis of accounting,the amount that has occurred but is unpaid should be recorded with a debit to interest expense and to the current liability interest payable
By way of passing a Journal entry as debiting the Interest a/c and crediting the interest payable.
The journal entry should be debiting the Interest expense and crediting the interest payable.
