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  • 08-12-2020
  • Business
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How can accrual adjustments for interest incurred but not yet paid affect the balance sheet and the income statement

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jepessoa
jepessoa jepessoa
  • 09-12-2020

Answer:

Accrued interests increase liabilities and reduce net income.

E.g. a typical journal entry used to record accrued interests

Dr Interest expense 100

    Cr Interest payable 100

Interest expense is an expense account that decreases net income. Interest payable is a liability account that increases current liabilities. Since net income decreased, so will retained earnings. This decrease in retained earnings should offset the increase in liabilities.  

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