 In this presentation, we're going to enter an adjusting entry related to accrued interest. Time for the accounting remedy of SAGE 50 Cloud Accounting. Here we are in our Get Great Guitars file. We're going to go back up top to our reports, selecting the reports dropdown. We want to take a look at those financial reports. We're going to look into that balance sheet report, our favorite report, the balance sheet report. We're at the February's. We want month two or period two, month two and period two, perhaps February 29th. We're going to be considering these liability accounts down below once again. So we're going to be considering this second loan. Now the second loan is a little bit different and this is going to be something that we could consider with any kind of loan that is going to be outstanding. And in this case, in the first loan, we had a loan that was going to be paid monthly. In the second loan, we've got a loan that we're going to be paying back all at the end of the time period. So we're probably more familiar with the type of loan where we break it out to a monthly payment. However, you can format a loan basically any time, any way you want. And other types of business loans, we may have one set up where we don't pay it back and that's what we're going to say here. We're not going to pay back the interest or principal until the end of the loan period. So that means that we're going to have interest that is accumulating upwards that we're not going to be paying until the end of the loan period. And so we've incurred it. We haven't yet paid it, so that's going to be the accrued interest or the interest payable that we're going to have to be recording. Let's take a look at our loan balance, we're on the loan balance too, and let's just consider this type of loan and what it might look like comparing the amortization kind of table to what we would have in the last one. So if we said we had a $50,000 loan, for example, let's say it's going to be due in six months and there's going to be accrued interest on it at 6%. So then it's possible that we have terms like this and they don't even give you basically the actual amount that you're going to have to pay back at the end of the period because we should be able to basically figure it from here. And it's a useful formula to kind of look at. It's another common formula which would be a future value formula. So let's use the future value formula to see what we would pay back then at the end of the loan period after six periods after six months with a future value formula. So to do that I'm going to go back up top and we're going to take a look at our formulas up top and this is one way we can do it. I'm going to insert a formula and I'm looking for a future value which is the FV. So FV formula future value and I'm going to say okay. So there we have our little table again that we can use. Now I'm going to pick up the rate. The rate is going to be this 6%. So I'm going to select that 6% but that's per year. So I want to take that and divide it by 12 and that'll give us the monthly rate. That's kind of the tricky component. So then the number of periods we're going to say is six periods. So we have six periods. The payment amount this is the other tricky component here is zero. We're not there is no payment amount because we're not making making payments so we're not going to put anything there. You could put zero there and then we're going to go to the present value which is what the current value is at this point in time which is going to be the 50,000. So we're currently at the 50,000. So that's what we have here. You could see that result will then be generated down below. Let's go ahead and say OK and there it is. If you double click on this you can also populate this formula with this little data input chart but I won't get too into the Excel weeds with it. So now I'm going to make it a positive number by just double clicking on it. I usually just put a negative in front of the first item. So I'm going to in front of the function and that'll basically take the whole thing and multiply it by negative one or flip the sign. So there's the 51,519. So in other words we're going to say we have a loan now of the 50,000. We're going to have to pay back at the end of six months 51,519 which includes the interest. Now if we think about that on a period by period basis the question is I still don't know how much interest has incurred after each month after each period. To do that we can do a little amortization table here. Note that there's no payment being made here. So there's no payment but we can do a similar kind of calculation for the interest. The interest would be the loan balance which we're starting off at period 150,000 times the 6%. That would be for a year and then we're going to divide that by 12 because we're talking about months here. And so there's the 250. So the principal increase would basically be the 250. That means the new principal balance and we might record this not as a principal but accrued interest, right? We got the principal plus the interest so the balance then is going to be the 50,000 plus the 250. So if this terminology, if the principal doesn't if that bugs you, notice it's principal and interest. We have principal and interest here as well what we're doing. So then we have the payment. Again, no payment. I'm just copying a similar table that we used for the amortization table. And then we're going to say that now the interest is going to be that 50,250, which is higher now, right? Times the 6%, times the 6% divided by 12. And so it's going to be the same principal increase. And so here's the prior principal plus the increase. So you can see again that there's a change on the interest. So let's do this one more time. We're going to say the 50,000 times I'm sorry that this is the wrong cell. I'm going to put a zero here. And then we're going to do this over here. We're going to say this is going to be the 50,501 times the 6% and then take that and divide it by 12. Right? And then we have that. Now I'm going to see if we can and then this is going to be the prior balance plus the increase in principal. Now let's see if we could copy this down. I'm going to do this one at a time like we did last time. I'm going to select these cells and put our cursor on the autofill hand. And I'm going to autofill just one cell down to start with. So I'm going to autofill just one cell down. And you can see there's a problem. Where's that problem going to be? You might be able to guess it's on the interest, right? The interest, this one moved down and we don't want it to. I want to use an absolute reference for that cell. So what I'm going to do is I'm going to delete this whole row, delete that and go back to the interest double click on it. That cell, which is a B3. I'm going to make an absolute reference by selecting, I'm going to put my cursor in that section and select F4. That puts a dollar sign before the B, a dollar sign before the three, making it an absolute reference. If I say enter and then we try this again and this time I'm going to assume it's correct and autofill basically all the way down cell or all the way down. And so I'm going to just autofill all the way down. And there we have it. So there's the 51, 519 and there's the 51, 519 that kind of verify that this process has been done correctly. Now we're going to say that one period has passed this period and that means that there's interests that has accrued that we have not yet paid. So that's going to be the accrued interest. This is interest, this is like rent that has accrued. Like we used the money, just like if we used the facilities of a building or something like that and hadn't yet paid the rent. Well, we still owe it, it's accrued. So I'm going to record an adjusting entry for this which is going to be increasing the interest expense and the other side going to a payable instead of increasing like the principal balance here at the loan balance, we'll put it into another liability account called interest payable. So that's what we'll do here. So let's go back on over. We'll do that of course with a journal entry. So I'm going to go back up top to our tasks. We're going to go down to the journal entry. So we want to enter a journal entry. So we'll select that item. It's going to be as of the cutoff date. So that's going to be the 229. And the debit is going to be to the interest expense. So let's see if they gave us an interest expense account that we can use. So scrolling down looking for interest expense. So we got income tax there and there's an interest expense. That's the one and this, I'm just going to call it an adjusting entry so that we can distinguish these adjusting entries. The amount is simply going to be for that 250. So I'm just going to make the amount for 250, 250. Then the credit is going to go to a payable account which is going to be interest payable which we probably do not have yet. So we have a lot of current liabilities accounts but I don't see interest payable. So what I'm going to do then is make another account. I'm going to put it somewhere, somewhere around here close to the loan. So let's make it 2410. I'll make it 2410. I'm going to make a new account. And so I'm going to say we need a new account here. Account number 2410. 2410. And then the description I'm going to say is interest payable. That's the terminology I like better. You can call it accrued interest if you so choose which could sound more formal to put accrued interest but in any case, then I'm going to say that this is going to be a liability, other current liability type of account, other current liability, that's what we need. And then okay, we'll save that, close this and then we'll record, then I got to pick the account. So I forgot what I called it already. So the account number then is, scroll down here. We want the interest payable, the 2410. So there it is, 2410, that's going to be a credit of the 250, so there we have it. Let's go ahead and save that and then record that and check out what happens to the old balance sheet. So there we have that, let's go to the balance sheet. Then we're going to be saying that in the current liabilities section, we have the interest payable of the 250. The other side's going to be on the income statement. So the income statement, if I go to the reports dropdown, financial statements, we want to take a look now at the income statement, opening up the income statement for the second period or February, removing the zero balances and saying okay and then we can go down and we should have on the bottom line the interest expense, interest expense. There it is, the 846 is in there. I was looking for 250, but obviously we have other interests involved here as well. So there's the interest expense, there's our adjusting entry. Note that if we put adjusting entry, that could be helpful of course, because then we can distinguish those end of period adjusting entries. So I'm going to close this back out, that's going to be it for now, let's get out of here.