Interest on Mookie The Beagle Concierges Loan Payable to Cy has been incurred, but not recorded or paid. The interest that has been incurred is calculated as principal multiplied by the interest rate multiplied by the time period ($1,000 6% 1/12 = $5.00). Interest Expense of $5.00 must be recorded as an accrued expense and Interest Payable, a liability, recorded for the amount that Mookie The Beagle Concierge is obligated to pay later. So an adjusting entry is needed to bring accounts up to date at January 31.