320 – Interest Payable

Current Liabilities

Accrued Liabilities

Synopsis

Account 320

Debits

Credits

  1. Payments made on interest-bearing obligations.

  2. The reversal of the prior month-end accrual.

  1. The amount of interest due at a future date  on all interest-bearing notes and contracts.

 

Remarks:

This account balance represents the amount of interest accrued monthly on all interest-bearing obligations, which is payable in a future accounting period.

Typical interest-bearing obligations for which interest should be recorded in this account include new and used vehicle inventories; mortgages; other automotive inventories; non-automotive inventories; and capital loans.

The finance institution handling the wholesale account should be requested to bill interest on the wholesale notes to a date as near to the end of the month as possible.  Interest accrued may then be computed by prorating the current month's charge over the remaining number of days to the end of the month, taking into consideration any sizeable change in the inventory amount financed.  For example, interest billed through the 20th of the month amounts to $1,000.  The period to the end of the month = 10 days or $333.  However, the inventory amount financed at this month-end is 10% higher than at the previous month-end.  The accrual is increased accordingly to $333 + 10% (or $33.30) = total to accrue $366.30.

Note: