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Managing Accrued Interest Expenses Effectively

Learn to analyze, adjust, post, and reverse accrued interest expenses. Includes closing entries and paying a note payable from a previous period. Understand the importance of reversing entries in accounting.

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Managing Accrued Interest Expenses Effectively

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  1. LESSON 21-2 Accrued Expenses

  2. 3 ANALYZING AN ADJUSTMENT FOR ACCRUED INTEREST EXPENSE page 622 2 1 1. Debit Interest Expense. 2. Credit Interest Payable. 3. Record the adjusting entry. LESSON 21-2

  3. 2 1 POSTING AN ADJUSTING ENTRY FOR ACCRUED INTEREST EXPENSE page 623 1. Post the debit. 2. Post the credit. LESSON 21-2

  4. Closing Entry • Close Interest Expense • Debit – Income Summary • Credit – Interest Expense • Amount in ledger after posting adjusting entry LESSON 21-2

  5. REVERSING ENTRY FOR ACCRUED INTEREST EXPENSE page 624 1 2 1. Debit Interest Payable. 2. Credit Interest Expense. LESSON 21-2

  6. 4 4 PAYING A NOTE PAYABLE SIGNED IN A PREVIOUS FISCAL PERIOD page 625 March 1. Paid cash for maturity value of the September 2 note: principal, $10,000.00, plus interest, $600.00; total, $10,600.00. Check No. 916. 1 3 2 1. Debit for the principal of the note. 2. Debit for the total interest. 3. Credit for the maturity value of the note. 4. Post the amounts in the General columns. LESSON 21-2

  7. ASSESSMENT QUESTIONS page 627 • From an accounting standpoint, why is using a reversing entry for interest expense advisable? To avoid having to remember to check an entry each time a note is paid to determine if interest should be divided. LESSON 21-2

  8. ASSESSMENT QUESTIONS • When do most accountants use reversing entries? Whenever an adjusting entry creates a balance in an asset or liability account that initially had a zero balance. LESSON 21-2

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