Asked by Carol Jasso on Jun 27, 2024
Verified
The journal entry used to record the payment of an interest-bearing note is
A) debit Cash; credit Notes Payable
B) debit Accounts Payable; credit Cash
C) debit Notes Payable and Interest Expense; credit Cash
D) debit Notes Payable and Interest Receivable; credit Cash
Interest-bearing Note
An interest-bearing note is a debt instrument that promises to pay interest in addition to the principal amount borrowed.
Journal Entry
A record of a financial transaction in the accounting system that includes the accounts and amounts to be debited and credited.
- Catalog financial activities related to notes payable, including their initiation, compensation, and transformation from accounts payable.
Verified Answer
HJ
Hamza JavedJun 28, 2024
Final Answer :
C
Explanation :
When a company pays off an interest-bearing note, they must record both the payment of principal (the amount borrowed) and the payment of interest (the cost of borrowing that money). The entry should include a debit to Notes Payable for the principal amount paid, a debit to Interest Expense for the interest cost, and a credit to Cash for the total amount paid.
Learning Objectives
- Catalog financial activities related to notes payable, including their initiation, compensation, and transformation from accounts payable.