How to Post the Payment of Interest on a Note Payable in Accounting
A note payable may exist as a current liability, meaning the obligation will become due in one year or less. Also, notes payable may be a long-term liability, which means the obligation will not be due until a year or more has passed. Whenever a company borrows money, interest expense comes into play and must be documented in the general journal. For example, when a company incurs a monthly interest expense of $1,000, the interest expense account must be debited for $1,000 and the interest payable account must be credited for $1,000. This indicates that the company has a $1,000 obligation as far as interest is concerned.
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Instructions
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Communicate the date of the transaction. The date written in the general journal should be the day when cash is withdrawn from the business. For instance, if the interest payment occurred on November 2nd, that should be the date recorded in the general journal. A bank statement or cancelled check can be used as a supporting document for the date of the transaction.
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Write the term "interest payable" next to the date of the transaction. Debit the "interest payable" account for the amount of interest being paid in the period. Debiting the "interest payable" account decreases the company's obligation. Use correspondence from the lender as supporting evidence of the interest amount.
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Write the word "cash" underneath the entry for "interest payable." Credit the cash account for the amount of interest paid. For example, if a company pays interest of $300, a $300 credit to cash must accompany the $300 debit to "interest payable."
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