Client is cash basis. They have a bank loan with interest accrued. Bank agrees to add accrued interest to the loan principal (capitalizes the interest). Client desires to show the correct loan principle balance in QuickBooks. No interest paid on the loan re-write. Client credits Loans Payable for the interest amount capitalized. Client debits (your answer here:______________)
Again, no interest paid, no cash changes hands, cash basis QB. My thinking is a contra Equity account of some nature, as the client's Liabilities have increased, and no Asset added or cash expenditure. I also sometimes think I'm a genius. Which will now be proven incorrect. Don't tell my wife. (Edited to correct "principle' to 'principal', as a matter of principle.)