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kendrah_p · Feb 5, 2010, 02:38 PM

Interest of a long-term note payable is paid twice a year on Sept 30 and March 31. The note matures of Sept. 30, 2013 and has an annual interest rate of 12%. The note is for $600,000 as of Dec. 31, 2009. What is my adjusting entry? I believe that I should multiply (600,000 * 6% since it is paid semi-annual) but don't know where to go from here to record my interest paid.

morgaine300 · Feb 6, 2010, 05:31 PM

First, the adjusting entry is from the time that interest was last paid, not for the time between interest payments. Interest was last paid on Sept. 30. Accruing six months' worth goes against the point of doing an adjusting entry. The point of the entry is to accrue the amount that's still unpaid which belongs to 2009. If you accrued six months, then you'd be accruing 3 months of 2010 interest into 2009.

This is an accrued expense. That's an expense which has been incurred and therefore must be recognized on the books, but has not yet been paid. If you need to recognize the expense, where does that go? And where do things go that have not yet been paid? ALL accrued expenses are the same concept. (Getting a utility bill and putting it on account is an accrued expense as well. Think about it.)