[Anonymous]

On the Ninja notes it says that for bond issued between interest dates, this is the JE

Dr Cash bond

Dr Cash interest

Cr. Bond payable

Cr. Interest payable

Cr. Premium

And then it gives an example where this is the bond amount, this is the %, sold on this date, this date and this date are interest dates, etc. The example given the bond is issued at par so there is no discount or premium. This is the JE

Dr Cash

Cr Bond Payable

Cr Interest Expense

Here instead of “interest payable,” it is “interest expense.” So I am just wondering, for bond issued between interest dates, for the credit section, do you use “interest expense” or “interest payable”?

[FIFOisbetterthanLIFO]

It's interest payable. Interest expense is an income statement account and it almost always has a debit balance.

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[Anonymous]

Cool thanks.

[Rhunter]

Apologies in advance for reviving this one, but I need to know for sure whether the credit goes to Interest Payable or Interest Expense.

I have read many places online and have seen Payable more than Expense, but Jeff even makes it a point to repeat himself in the audio program that a credit is going to interest expense.

Either method makes sense conceptually, but I need to know which one will get me a correct answer on the exam. Thanks!

[FIFOisbetterthanLIFO]

If the credit went to interest expense, you would have a negative expense. Every month that interest accrues you debit interest expense and credit interest payable.

Separately, when you finally make a cash payment on the interest, your entry is to debit the payable and credit cash.

Make sense?

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[Rhunter]

Thanks for the response FIFO>LIFO. I understand that typically Interest Expense should carry a debit balance, but ultimately the credit will be reversed upon the first interest payment. Both methods get you to the same recognized expense. I do feel that crediting Interest Payable is the more correct approach because it looks cleaner in the G/L after all entries have been posted, and the payables balance is more accurate. What I can't get past is the fact that multiple sources are advocating the credit to Interest Expense approach. If it's not correct, then why would any CPA study course present misinformation?

[Author]

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