A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest (expense/payable/receivable) account and (debit/credit) the Interest (expense/payable/receivable) account.

Question

Business

Ulises Sosa

22 May, 05:57

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest (expense/payable/receivable) account and (debit/credit) the Interest (expense/payable/receivable) account.

+4

Answers (1)

Know the Answer?

Slade Freeman · Answer 1

Outstanding number of days is the period over which the loan balance remains unpaid. Since this loan earns 5% interest, required adjusting entry for this company would be to Debit interest expense account and Credit the interest payable account. It is an accounting requirement that all expenses be debited. On the other hand, interest payable is the amount that a company owes a lender and is therefore credited as the corresponding journal entry to the interest expense.