![]() ![]() ![]() Notice when you are studying financial statements that interest expense can be Here are T account representations of the liability accounts (the checking account with the credit of $1,685.28 is not shown): In January, when the payment is made, the entry looks like this: Journal Interest incurred in December on the $100,000 principle for one month at 12% annual interest was $1,000, so that amount is recorded both as an expense and a payable (current liability). In this account, the company records the interest it has incurred but has not paid as of the end of the accounting period. Under the accrual method of accounting, the company will also have another liability account entitled Interest Payable. Since a note payable will require the issuer/borrower to pay interest, the issuing company will have interest expense. The journal entry to record the receipt of the proceeds of the note is fairly straight-forward–increase the checking account to reflect the deposit, and increase a long-term liability account called Notes Payable: Journal The balance in Notes Payable represents the amounts that remain to be paid. Notes Payable is a general ledger liability account in which a company records the face amounts of the promissory notes that it has issued. Let’s follow this example: YourCo borrows $100,000 from the bank on December 1 of 20X1 at 12% interest (compounded monthly) with principal and interest due monthly so that the loan is completely amortized by December 1 of 20X9. ![]() Record journal entries related to notes payable. ![]()
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