Capitalized Interest

RE: The note was renegotiated and we now need to capitalize the interest (add it to the note balance).

If you're tracking it as a liability, open the liability account register - double click the account on the chart of accounts - and make one or more entries using the interest expense account that increase the account balance by the amount of the interest.

We are the note holder and it is a receivable.  There is no interest expense.  

Oh, I see. Well, then the same answer but for an Asset account and using an income account for the interest, not an expense.

Or, If you're tracking the note receivable in an Accounts Receivable type account, then to increase the customer balance you can use the finance charge feature or just enter additional invoices each month for the interest accrued on the balance. Either way does basically the same thing.

I guess my confusion is in the fact that amount I have accrued for the past 5 months now need to be added to my note rec (asset).  When accrueing the interst each month I CR Int Inc and DR Acc Int.  So now I need to adjust those two account.  I can CR ACC Int and DR Note Rec but then I still have it showing in my interest income account.  It really isn't interest income is it?

RE: I guess my confusion is in the fact that amount I have accrued for the past 5 months now need to be added to my note rec (asset). 

Yes, that's the normal way to do it, because interest charged increases the asset amount. If that wasn't done, then probably those accrual transactions should be edited and changed to use the note asset account.

ok so I increase my asset account and decrease my interest accrued account.  What about my interest income account.  Do I have to do anything with that?

Well, you could do that, but I see no reason to use an interest accrued account at all. Instead, just record the interest directly in the asset account.

Exactly what I did!  Thank you