Interest charged by the creditor on an overdue account...

by Bernard
(png)

would be credit or debit?


A:
To answer this question you first have to work out what that interest is. Is it an asset, income, expense, liability?

The answer is that this is an interest expense. It is a cost to the business. Even though you are not paying the creditor cash straight away, it is still a cost or expense and it will result in paying money out of the business in the future.

Expenses are always always always recorded on the left side, the debit side.

So the entry would be like this:

Debit: Interest expense...........$100
Credit: Creditor............................$100

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