Journal Entry for Loan Payment (Principal & Interest) Loans are a common means of seeking additional capital by the companies. Interest expense is a type of expense that accumulates with the passage of time. The journal entry would show $100 as a debit under interest expense and $100 credit to cash, showing that cash was paid out. An Interest Expense of $125 has incorrectly been debited to Utilities Expense. In the future months the amounts will be different. The journal entry would be like this: Dr Accounts Receivable Cr Interest Income The debit to accounts receivable means more money is owed to your business. Calculating simple interest expense is a function of multiplying the stated interest rate, principal amount and time. Proofreading your cover letter and resume carefully is one of the main areas of the practice. Many accounting departments keep amortization tables illustrating interest expense. If a company borrows money from a bank via a short-term lending conduit, the loan amount would be recognized as a liability on the balance sheet, with a corresponding debit to cash. This type of calculation can be used every accounting period before financial statements are published to ensure the income statement accurately reflects interest expense. The journal entry follows: In this case, on May 15, 2020, the company will make the journal entry for the interest paid as below: This journal entry is to eliminate the $250 interest liability that the company has recorded in the April 30 adjusting entry as well as to record the interest expense that has accumulated for 15 days (from 1st to 15th of May) in the month of May. For instance, the following entry would record interest on June 30, 20X3, and result in the balance sheet disclosure below: And the credit to interest income is simply because income is always credited. The interest represents 8% of $10,000 for half of a year (January 1 through June 30). What is a Reversing Entry? Categorizing expenses accurately will make it easier for management to gauge operations. In US GAAP, ‘capitalized interest’ is the part of interest expense that is capitalized as part of the cost of asset. Outstanding expenses are those expenses which are due in the current accounting period but not paid.The benefits of such expenses have been consumed although due to some reason they are not paid until the end of the accounting period. If it doesn’t, or an accrual hasn’t been posted, then an adjusting entry can be posted to the general ledger. A loan received becomes due to be paid as per the repayment schedule, it may be paid in instalments or all at once. January 15, 2016, Journal Entries . At the same time, it is to record the expense incurred during the current period. The agreement requires the company to pay monthly interest on the 15th day of each month with an interest of 1% per month. 5.Post Journal entry, at the time of loan repayment. Likewise, it is necessary to record interest expense as it occurs to avoid the understatement of both expenses and liabilities in the income statement and the balance sheet respectively. This journal entry is required to make at the period-end adjusting in order to recognize the interest expense that has occurred in the current accounting period as well as the interest liability that the company owes. In this case, the company creates an adjusting entry by debiting interest expense and crediting interest payable. The expense must be recorded monthly, including accruals for expenses incurred but not yet paid. Journal entry at the time of issuing the note on October 1, 2018:The company obtains a loan of $100,000 against a note with a face value of $102,250. 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