YouScience Accounting 1 Practice Exam

Accrued interest at period end is recognized as an expense with a corresponding liability. When interest has accrued but hasn’t been paid yet, you record it by debiting Interest Expense to reflect the cost for the period and crediting Interest Payable to show the amount owed. This matches the accrual basis of accounting, which records expenses when incurred rather than when cash is paid. So, the correct entry is Debit Interest Expense; Credit Interest Payable. If you later pay the cash, you would then reduce the payable by Debiting Interest Payable and Credit Cash. The other options mix up the timing or the accounts: paying cash immediately would involve Cash and reducing a payable, not recognizing the accrual; using Revenue would be inappropriate since this is an expense, not revenue; and reversing the accounts would misstate the nature of the transaction.