When interest-bearing short-term notes payable mature, the interest is typically paid on the same day. However, the terms of long-term notes frequently require periodic interest payments.
The note's capital is $100,000. The annual interest rate is 9%. Interest for a year is equal to $100,000 0.09 $9,000 Interest per month is equal to $9,000 / 12 $750 Interest due on December 31, 2021, is equal to $750 4 months $3,000 The remaining interest expense, which is equal to $100,000 0.09 6/12 = 4,500 $3,000 = $1,500, will be incurred in 2022.
Interest payments are almost always required for notes payable. It is necessary to accumulate the unpaid interest on the debt for the time it has been outstanding. Interest accrual results in a cost and a liability. For interest payable, a different liability account is used so that it can be identified separately.
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