Interest Expense
Definition: Cost of borrowing
Scope:ModerateDifficulty:Easy
Cost of borrowing
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Accrue interest on note payable | ||
| $500 interest incurred but not yet due. | ||
| Interest ExpenseExpense+ | $500 | |
| Interest PayableLiability+ | $500 | |
| Adjusting entry—expense recognized in period of borrowing. | ||
| 2. Pay interest | ||
| Pay $500 interest when due. | ||
| Interest PayableLiability− | $500 | |
| CashAsset− | $500 | |
| Liability cleared. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
Interest ExpenseExpense account — cost of borrowing money. Debits increase the balance. Credits decrease the balance.ExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$500.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$500.00
Interest PayableCurrent liability — interest that has been incurred but not yet paid. Credits increase the balance at period-end accrual; debits decrease it when payment is made.LiabilityAn obligation the business owes to others. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$500.00
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$500.00
Normal bal. ▶
$0.00
CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$500.00
$500.00
DurationN/A
Related Reports
- Income Statement(Primary — Non-operating)
Related Subjects
Used in Formula
- Interest Coverage RatioUsed in: Interest Coverage Ratio
- Fixed Charge Coverage RatioUsed in: Fixed Charge Coverage Ratio
See Also
- CashPaired in entry: Record mortgage payment
External Links
- Interest expense — Wikipedia