Which entry would be used to record bond interest on the due date in the debt service fund?

Which entry would be used to record bond interest on the due date in the debt service fund?

• A. Expenditures—Bond Interest
• B. Expenditures—Principal of Bond
• C. Interest Revenue
• D. Cash

Answer: (A)

In a debt service fund, payments of interest are recorded as expenditures when they are paid. The fund uses current financial resources to meet the debt obligations, so the appropriate entry reflects the cost of the current period interest and the outflow of cash. Therefore, you debit Expenditures—Bond Interest to recognize the expense and credit Cash to show the cash payment to bondholders. This aligns with how debt service funds track the ongoing cost of servicing debt on the due date. Expenditures—Principal of Bond would be used when paying down the bond’s principal, not the interest due. Interest Revenue isn’t applicable here because the debt service fund isn’t recording interest income from the debt in this context. Simply recording Cash wouldn’t reflect the expense and the use of resources for debt service.

In a debt service fund, payments of interest are recorded as expenditures when they are paid. The fund uses current financial resources to meet the debt obligations, so the appropriate entry reflects the cost of the current period interest and the outflow of cash. Therefore, you debit Expenditures—Bond Interest to recognize the expense and credit Cash to show the cash payment to bondholders. This aligns with how debt service funds track the ongoing cost of servicing debt on the due date.

Expenditures—Principal of Bond would be used when paying down the bond’s principal, not the interest due. Interest Revenue isn’t applicable here because the debt service fund isn’t recording interest income from the debt in this context. Simply recording Cash wouldn’t reflect the expense and the use of resources for debt service.