How to Adjust an Entry for Accrued Interest on a Note Payable

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A note payable is a loan or other type of debt a company owes to a creditor that typically requires periodic interest payments. Accrued interest is the amount of interest you owe that has accumulated over a period of time. You can create an adjusting journal entry in your accounting journal to reflect the amount of interest you have accrued on a note payable you have yet to pay. Accrued interest generates an expense that reflects the amount accrued and a liability for the same amount that reflects what you owe.

Determine the amount of interest you have accrued on a note payable for an accounting period and the date on which you are recording the adjusting entry. For example, record accrued interest of $1,000 on March 31 to reflect interest that has accrued on a note payable during the first quarter.

Write the date of the adjusting entry in the date column of your accounting journal. For example, write “03-31” in the date column.

Write “Interest Expense” in the account column and the amount of accrued interest in the debit column both on the same line as the date. Debit is an accounting term meaning increase or decrease, depending on the account. The amount in the debit column reflects an increase in the interest expense account. For example, write “Interest Expense” in the account column and “$1,000” in the debit column.

Write “Interest Payable” with a left indent in the account column and the amount of accrued interest in the credit column both on the next line. Credit means increase or decrease, depending on the account. The amount in the credit column reflects an increase in the interest payable account, which is a liability, or money you owe. For example, write “Interest Payable” in the account column and “$1,000” in the credit column.

Write a description of the adjusting entry in the account column on the next line. For example, write “Record accrued interest for first quarter.”

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