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Effective Interest Method:Interest Expense Journal Entries

Brian Krogol
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So once we've created our amortization table Building the journal entries is the easy part. We've already done all the hard work. Now we just take those numbers that we we've got in our amortization table and bring them down into our journal entries. So the july 1st 2018 journal entry. Well those are going to be the numbers from july 1st 2018 in our amortization table. So july 1st 2018 Here is our journal entry. Right here we're gonna debit interest expense for 4807. Just like it says in our table 4807 We're going to credit the discount On bonds payable for 307 and we're gonna pay cash interest of 4500 right now. How about at the end of the year December 31, 2018. So notice we've got 112019 because that's the day we're actually gonna pay it. But on the last day of the year we are going to have to accrue for the interest that we have earned over the last six months. Right? So on December 31, 2018 6 months have passed. And we're making our journal entry. So we would debit interest expense. And that would be for the amount that we see there Which was, I forgot it. 4008 23. We would credit the discount on bonds payable for the 323 in the table. And we would finally, instead of cash in this case, remember we're accruing just like we did when we first learned our interest accruals, what we were not paying it till tomorrow till january 1st 2019. So we have an interest payable at this point. Okay? It could be cash if we're gonna pay it today or interest payable if we're paying it tomorrow. Right? 4500. That's exactly what's happening here. Okay. And now on january 1st 2019 when we finally pay off that interest payable, What we would do interest payable For the 4500 that we owe in cash and we're gonna pay that in cash for 4500. Right, so that was just an adjusting entry really to make sure that we accrued for that interest expense that happened during those six periods or during those six months. And then finally when we do pay it, we just get rid of that liability interest payable to pay for cash on the next day. Cool. Alright. So that was pretty tricky. I hope you guys understood that. And if not I know if you watch it one more time you're gonna get it. All right, Let's go ahead and move on to the next topic.