At any time after April 9, the bonds are redeemable at 100% of the principal amount, together with accrued interest. The bank’s adjusting entry will debit Accrued Interest Receivable for $50, and will credit Interest Revenue for $50. The company’s adjusting entry will debit Interest Expense for $50, and will credit Accrued Interest Payable for $50. The borrower’s adjusting entry will debit Interest Expense and credit Accrued Interest Payable . The lender’s adjusting entry will debit Accrued Interest Receivable and credit Interest Revenue .

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Elements of Accrued Interest

The debit is rolled into the income statement and the credit into the balance sheet (as a short-term liability). The amount of accrued interest for the recipient of the payment is a debit to the interest receivable account and a credit to the interest revenue account. The debit is rolled into the balance sheet (as a short-term asset) and the credit into the income statement. Fixed rate interest payments are generally paid semi-annually. For example, actual interest payments may be made by the Office of the Treasurer in May and November; therefore, accrual entries will be recorded by the Office of the Treasurer for each quarter. These accruals should reverse either at the end of each quarter or in the month the actual interest expense is paid, whichever occurs first.

Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities definition of accrued interest transaction. Leonard owns a bond worth $1,000 with an interest rate of 14%. The last coupon payment that Leonard made was three months ago.

Definition of Accrued Interest

These interest payments, also referred to as coupons, are generally paid semiannually. At the end of each month, the business will need to record interest that it expects to pay out on the following day. In addition, the bank will be recording accrued interest income for the same one-month period because it anticipates the borrower will be paying it the following day. However, if you sell something to a customer on credit and you charge interest on credit balances, then your business is earning interest every day until the customer pay off that balance. The bond pays interest on January 1st and July 1st, and corporate bonds assume that each month has 30 days and there are 360 days in a year.