Kimmel Accounting: Tools for Business Decision Making4-6 by multiplying the principal by the rate by the time: in our example, $12,000 X .12 X 2/12, or $240. The entry is: Interest Expense 240 Interest Payable 240 (To record accrued interest) It is important to notethat the account Notes Payable is not used in the entry. Notes Payable was credited when the money was borrowed and will be debited when the note principal of $12,000 is repaid. If this adjusting entry is not made, then liabilities and interest expense will be low, and net income and stockholders' equity will be high.
SO6. Describe the nature and purpose of the adjusted trial balance.
SO7. Explain the purpose of closing entries.