Hi,

I am reluctantly preparing some basic financial statements for my boss! I have prepared an ETB with one outstanding issue - A large loan was made during the year and interest has been subsequently agreed on it - I therefore need to accrue for the interest but what is the entry required for this?! Thank you.

Adam

To accrue interest, is done at end of accounting period. Is the loan made by our boss, or does he have an outstanding loan? If the loan was issued by him: ex: loan $20,000, issued May 31,07 with 10% interest paid yearly. $2000 a year in interest. However, the loan was issued in may, and we are determining interest until end of oct. 2000/12=166.67 a month x 6 months of interest to be accrued=$1000.00
Journal Entry: interest receivable 1000
interest revenue 1000
If he owes the loan: interest expense 1000
interest payable
That is the general formation, may need to be more specific with interest owed to whom in entry, however that is the jist of it. Hope it helps

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Originally Posted by adman30

Hi,

I am reluctantly preparing some basic financial statements for my boss! I have prepared an ETB with one outstanding issue - A large loan was made during the year and interest has been subsequently agreed on it - I therefore need to accrue for the interest but what is the entry required for this??!! Thank you.

Adam

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Hi thanks - loan made by boss from the company for £800k - Interest agreed is £85k approx to the year end 31 December - So Cr Interest Receivable Dr what - BSheet or PL? Excuse my ignorance - never come across this before and far from an accountant as u can guess!

Okay, so we are going to accrue for a 12 month period? If it is a 12 month period he is owed that interest to him, the full 85K.
JE: Interest Receivable 85,000(DR)
Interest Revenue 85,000 (CR)
On the Income Statement this 85K will be put under: other revenue/gains
Not in the operating section, because this rev is not made by regular operations of the company, but is still taxable revenue.
The Receivable for this 85K will be on the balance under current assets, as interest receivable because it will be turning to cash within a year.
Did this help at all? If it isn't for the full accounting period from jan 1 to Dec 31, but it was issued sometime through the year, the whole 85K will not be owing, just a %age, and to determine that is illustrated above.