Question
On November 1, a company signs a 6-month, 12%, $30,000 note payable. At its December 31 year-end, the adjusting entry for accrued interest is for:
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IFRS 9 — financial liabilities
Interest accrues on the outstanding principal for the time the note has been outstanding, whether or not it has been paid. At the period end split the obligation between the current and non-current portions if the note runs beyond twelve months.
Common mistakes
- Omitting accrued interest at the period end because no payment has fallen due.
- Presenting the whole balance as non-current when part matures within a year.
- Applying the annual rate without pro-rating for the months outstanding.