At year-end, accrued interest expense is recorded as what?

• A. Debit Interest Expense; Credit Interest Payable.
• B. Debit Interest Payable; Credit Interest Expense.
• C. Debit Cash; Credit Interest Revenue.
• D. Debit Interest Revenue; Credit Cash.

Answer: (A)

Accrued interest expense at year-end is recorded to reflect interest that has been incurred but not yet paid. The proper adjusting entry increases the expense and creates a liability for the amount owed: Debit Interest Expense to recognize the cost, and Credit Interest Payable to show the company owes this amount. When the cash is eventually paid, you would debit Interest Payable and credit Cash to settle the obligation. The other options would either record revenue or cash movements that don’t reflect an expense incurred but not yet paid, or would reverse the liability increase inappropriately.