This is the only answer that makes sense. There is no cash transaction, only that your interest and principal were paid on your behalf and therefore the offset to your normal Principal and Interest payment is other income (P&L) instead of a credit to cash.
@ablee wrote:
I received the following from my auditor:
Normal debt payment is:
Debit Loan Principal
Debit Interest Expense
Credit Cash
Consider you made this entry as you normally do however your credit is held in an accrued liability account instead of cash. Since this was paid for you, you would move this accrued liability credit balance down to other income.
The interest is essentially a wash but since it was paid on your behalf and is forgiven, you would should the gross position.
Correct entry is:
Debit accrued liability
Debit interest expense
Credit other income
